Unit trusts – what’s the deal?

Last updated on 13th December, 2017 at 10:16 am

Unit trusts are often mentioned as an easy way of investing – but it’s more than just that. There are a number of real advantages for investors of all levels.

Unit trusts are funds legally set up as a trust – you pool your money with other investors who have similar objectives. Experienced investment managers then invest this pool of money in different assets in financial markets, such as a wide range of local and international equities, bonds, property and money market instruments.

Why invest in unit trusts?

• They are easy to access and there are no minimum investment periods. So, you can access your money within 48 hours. But remember, you’ve invested for the long term so try not to touch your savings unless necessary.
• You can invest in a unit trust for as little as R200 a month (via a monthly debit order) or a R5 000 lump sum.
• You always know how much you own, because you receive a certain amount of units depending on how much you have invested. Each unit trust has a cost per unit (or net asset value). So you know how many you have and can check their value in the paper daily.
• They are good value. The annual management fees are competitive and clearly stipulated. The initial fees are low and negotiable with your intermediary.
• Your money is safe as it’s held in a trust account – and not by the investment company.
• They are tax effective in terms of Capital Gains Tax because the tax is paid within the unit trust fund.
• Being part of a pool of investors increases your buying power, because fund managers can buy assets that you, as an individual investor, couldn’t buy on your own.
• Unit trusts help you spread your risk – ie you don’t have all your eggs in one basket. So if one range of asset classes is not performing well, the performance of the others will hopefully compensate for this.
• Unit trusts are managed by highly qualified, skilled and experienced investment professionals, who make the best decisions on your behalf.

History is on your side. It’s been proven that the longer you leave your money in most unit trusts, the greater the opportunity for growth.  Work on a time horizon of anything from three to five years but preferably the longer the better.