What Can an SMSF Invest In? Rules Explained

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.

What can an SMSF invest in?

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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(GENERAL INFORMATION ONLY)

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DISCLAIMER: This article is provided for general information and educational purposes only. It does not constitute financial, legal, tax, investment, or other professional advice and has been prepared without taking into account your personal objectives, financial situation, or needs. This article may include perspectives from industry contributors. Contributor participation does not imply endorsement, recommendation, or preferred referral status. While reasonable care has been taken in preparing this content, no representation or warranty is made as to its accuracy, completeness, or currency. SMSF Intelligence does not accept liability for any loss or damage arising from reliance on this information or any linked materials. SMSF Intelligence does not provide financial, legal, or tax advice. Before making any decisions, you should consider the appropriateness of the information in light of your circumstances and seek advice from a suitably qualified and licensed professional.