Investment Strategy Diversification

Trustees may receive a letter from the ATO regarding their Fund’s diversification requirements. As Trustees of a Fund, it is your responsibility to ensure that the investment strategy complies with diversification requirements. It is a good practice to note under the Fund’s minutes that the investment strategy is current and appropriate. The Trustees can edit the SMSF’s investment strategy to suit the Fund’s needs.

If Trustees receive a letter referred to above, they may need to consider the following points to illustrate adherence to the diversification requirements:

• Confirm that the investments made meet the Fund’s investment objectives
• Confirm that you have considered diversification of your Fund’s investments
• Confirm that you have considered the risks associated with an inadequate diversification within the context of your SMSF’s investment portfolio
• Confirm that the making, holding and realising the likely return from your investments have regarded to your retirement objectives and expected cash flow requirements
• Confirm the liquidity of your investment, meaning the Fund is able to pay benefits as Members retire and pay other costs incurred
• Consider whether to hold insurance cover for one or more Members of your SMSF

If you receive a letter referred to above from the ATO, please make sure to document your adherence to the points noted above and provide a written evidence to the auditor to confirm adherence to the diversification requirements.

Please see here to download the Investment Strategy Diversification Compliance Checklist:

For more information on investment strategy, please see here.