OK, this may be where I am getting confused between
"Vanguard Australian Shares Index ETF (VAS)"
"Vanguard Index Australian Shares Fund"
because I can't see the difference, apart from the fund one is allowed by my Super as an investment, and has considerably higher fees.
One is the ETF traded on the ASX and one is the managed fund (unlisted)
Also - dividends from shares held in Super - what happens to them? Do they top up the cash account or how does it work?
Thanks for any advice.
Here's my best guess, while I work in Super this isn't really my specialty. If your in a Super funds investment strategy like 'Australian shares' the fund pools everyone's money and invests in Australian shares like BHP, WOW etc. You then own 'units' of Australian shares. At the time you invest you are given a unit price. Each Australian share might be initally worth $1.00. If you have $1000 invested in Australian Shares then you own 1000 units. The assets that support these units grow/increase due to capital gains, dividend payments, franking credits, options etc... Based on the movement of assets the value of your Australian share 'units' will change. By the end of the year each unit might be worth $1.20. So dividends are priced into the value of you unit, its not just capital gains.
Yes this is along the lines of what happens. Industry and retail Super funds will appoint a fund manager (a "mandate") to manage a pool of money in a particular asset class. The fund manager buys and sells the assets as a group, and then the Super fund's back office will maintain the allocations back to individual investors.
So when you switch out of an Aus shares option for example, you don't trigger CGT... the pool of money is still invested, but the Super Fund will change your allocations via unit prices.
You might wonder then how they can accurately credit returns on investments... here's the rub, it's not 100% accurate.
Most industry funds will maintain a small reserve of uncredited investment returns in order to smooth out the differences between the actual pot of money invested in an asset class, and the sum of the total amount invested by all members in the fund in that asset class. You will see this on the balance sheet of the fund in its annual report.
The system works because not everyone asks to redeem their money at the same time. The only time when the entire books reconcile exactly will be when the Fund decides to wind up, liquidate all assets to cash and return all money.