What are Unit Trusts – By Alida Roos
Understand the Risk of Your Investment
In our previous article, we reported that investors investing in a diversified unit trust portfolio could achieve the best inflation resistant stocks returns.
What are Unit Trusts?
An unit trust (also called a collective investment) is an investment portfolio that consists of different underlying assets, or asset classes, which include shares, bonds, cash and property. You can therefore invest in several underlying asset classes simultaneously with a single unit trust investment, as you prefer.
10 Reasons to Invest in a Unit Trust Portfolio
You can make a one-time lump sum investment or choose to invest a small amount on a monthly basis. Minimum lump sums range from R20,000 to R50,000 and monthly contributions per debit order start at R500. Debit orders can be cancelled, increased and reduced without any fines.
Unit trusts are easily tradable and you get access to your funds in 3–5 business days. You can therefore withdraw at any time. You can also schedule regular withdrawals that ensure monthly, quarterly, half-yearly or annual income.
Diversity and Risk
You can diversify your portfolio by selecting the percentage allocation to each underlying asset class. This asset composition will depend on your risk approach applicable to your circumstances. You can review this asset composition at any time to provide for changing investment conditions without paying any fines.
As unit trust portfolios invest in a variety of underlying assets, the risk associated with your investment is spread over the underlying asset classes. If any of these assets perform poorly, your overall investment will not necessarily perform poorly, as other assets may perform well. It helps to improve your chances of good returns and reduce risk.
Unit trusts can offer you exposure to foreign investment opportunities without using your foreign grants.
Unit trusts are managed by expert fund managers. Active and professional management aims to maximise your returns while reducing risk.
Sufficient exposure to growth assets (shares and property) yield returns in the form of capital growth and income and should significantly outperform inflation over longer periods. The benefit of this investment lies in the time you are willing to leave your money in the investment to grow and unit trusts should be regarded as a medium to long-term investment.
Legislation requires that certain facts be made available to the public. By far the majority of funds publish a monthly fact sheet that discloses, among other things, the fund’s exposure to asset classes, performance figures and market view of the fund manager.
Transparency and Competitive Cost Structures
The initial fees and management fee fees must be fully disclosed and investors can thus eliminate fund managers who charge excessive fees.
Income (interest and dividend) and capital gains on unit trusts are taxed in the hands of the investor. Unit trust companies provide annual statements to investors reflecting all transactions for tax purposes and reduce the burden on individuals to do these calculations themselves.
Protection for the Investor
The collective investment schemes control act regulates the management of unit trust funds. Financial advisors who handle investments in unit trusts must be registered with the financial services board.
Please contact one of our expert advisors for further information.
The above-mentioned is for information purposes only and is in no way advice. Boshoff Visser Konsult (Pty) Ltd. encourages readers to get in touch with an expert financial advisor before making any decisions.