A managed investment scheme (MIS) is a collective investment arrangement defined under the Corporations Act 2001 (Cth). It applies where people contribute money or money’s worth to acquire rights to benefits produced by the scheme, participants do not have day-to-day control over its operation, and contributions are pooled or used in a common enterprise to produce financial benefits.
Expanded Answer
The Corporations Act defines a managed investment scheme by reference to its legal characteristics rather than the type of investment being offered. An arrangement will generally be an MIS where investors contribute funds or assets, those contributions are pooled or applied in a common enterprise, and investors rely on another person to manage the investment. Participants receive the benefit of the investment but do not exercise day-to-day control over how the scheme is operated.
Many property funds, mortgage funds, agricultural investments and managed portfolios are structured as managed investment schemes. However, not every investment or joint venture is an MIS. Certain arrangements are specifically excluded under the Corporations Act, including some franchise arrangements, regulated superannuation funds and genuine partnerships. Where an arrangement satisfies the statutory definition, additional obligations may apply, including registration of the scheme, appointment of a responsible entity and the requirement to hold an Australian Financial Services Licence authorising the operation of a managed investment scheme.
Key characteristics:
- Contributors acquire rights to benefits under the arrangement.
- Contributions are pooled or used in a common enterprise.
- Members do not have day-to-day control over the operation of the scheme.
Why it matters
Correctly identifying whether an arrangement is a managed investment scheme is critical because it determines whether registration, licensing and responsible entity obligations apply. Misclassifying an investment structure can expose operators to significant regulatory and enforcement consequences.
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Practical guidance
- Assess the legal characteristics of the arrangement against the definition of a managed investment scheme in the Corporations Act.
- Identify whether participants contribute to a common enterprise and lack day-to-day control over the investment.
- Obtain licensing and structural advice before operating or promoting an arrangement that may constitute a managed investment scheme.
Further reading
Managed Investment Schemes and AFSL Requirements
What are the requirements for an AFSL? A Practical Guide for Prospective Licensees