What Can an SMSF Invest In? Rules Explained
- Editorial Team
- Feb 6
- 2 min read
Updated: Oct 29
A Self-Managed Super Fund (SMSF) offers trustees flexibility in choosing investments, but strict rules apply to ensure funds are used only for retirement purposes. Knowing what your SMSF can invest in—and the rules that govern those investments—is critical for long-term compliance and performance.
The Core SMSF Investment Classes
Most SMSFs invest in three main asset classes: shares and related securities, bank accounts and term deposits, and property. These form the foundation of many SMSF investment strategies.
Shares and managed funds provide growth and diversification. Bank deposits and term deposits offer stability and liquidity.
Property, either residential or commercial can provide steady rental income and potential capital growth.
The Sole Purpose Test
Every investment must satisfy the sole purpose test. This means the investment must be solely for providing retirement or death benefits to members or their beneficiaries. For example, a property owned by an SMSF cannot be lived in by trustees, family members, or used as a holiday house. The same principle applies to collectibles and personal-use assets. Jewellery, wine, and artwork can be owned by an SMSF, but members cannot use or display them for personal enjoyment.
Business Activities and Restrictions
An SMSF cannot run a business, as doing so is generally considered a breach of the sole purpose test. Investments must be made with retirement outcomes in mind, not to generate present-day benefits. This distinction also separates an SMSF investment strategy from a business or trading strategy. Trustees are required under superannuation law to consider risk, return, diversification, and liquidity when setting an investment strategy.
Borrowing and Limited Recourse Loans
While SMSFs are generally not allowed to borrow, there is an exception through a limited recourse borrowing arrangement (LRBA). This structure allows the SMSF to purchase a property through a separate trust. The lender’s rights are limited to the purchased property, which protects the rest of the SMSF’s assets.
Diversification and Risk Management
The law requires SMSF trustees to consider diversification when making investment decisions. Concentrating too heavily in one type of asset—such as property—may create risks around liquidity and fund performance. A balanced strategy that considers different asset classes can help ensure compliance and stability.
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DISCLAIMER: This article is provided for general information only. While care has been taken, no guarantee is given as to the accuracy, completeness, or timeliness of the content. It does not constitute financial, accounting, legal, or SMSF advice and does not consider your personal circumstances. You should seek independent, licensed professional advice before making decisions about SMSFs, compliance, or investments. #SMSFInvestments #SMSFRules #Superannuation #RetirementPlanning
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