Letters have been sent mainly to funds that have borrowed to buy residential property.

Funds that have a single investment making up more than 90 per cent of the portfolio have been specifically targeted.

All SMSFs must have a written investment strategy.

This means people managing their own super must take a professional approach and prepare an investment plan that gives them a chance of at least matching the returns of publicly available super funds.

Many people think they can beat the returns earned by industry and retail funds and some think the best way to do it is with residential property.

Sometimes they are right with properties producing major capital gains, but not always.

And the loan increases the risk to the fund's assets.

The rental income net of property costs such as rates, body corporate fees, insurance, repairs and maintenance, is usually only 2.5 to 4 per cent per annum.

From that the loan interest must be paid.

Then there are the SMSF running costs such as accounting and audit fees.

If the capital gains are slow it's easy to see how the total returns can be poor.

Capital gains are sometimes slow because investors buy properties in far-away locations on the advice of a property promoter and pay too much for them.

Investors (trustees) need to research the proposed property purchase thoroughly.

They should visit the property, investigate the local market and its potential, and get independent advice from other advisers not promoting property in that area.

The main benefit of diversification is that if the geared property returns aren't as good as expected then other investments may have done well.

They could include shares or commercial property in Australia or overseas, or funds investing in them.

Fixed interest and cash can play a part in providing stability, and the liquidity the ATO likes to see in case an unexpected payout is required.

Australian share investments can be selected using one's own research or the advice of a share broker.

Those unfamiliar with share purchasing can invest in an Australian share fund run by professional fund managers.

The better managers exceed the market average returns.

Commercial property, infrastructure and overseas shares aren't readily accessible directly.

Again, managed funds provide a practical means of accessing those areas and their usually healthy returns.