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What is a Unit Trust

A unit trust is a mutual investment fund where many of investors, most of whom know little about saving in this way, benefit from greater security and better economies of scale than if they had invested directly in company shares.

Unit trusts provide a way for you to invest in shares, bonds, cash and other securities without requiring a detailed knowledge of the markets. Each unit trust has specific objectives and a portfolio manager who aims to achieve the purpose of the portfolio through an investment strategy. This is done by investing the pool of money in the fund in a variety of underlying assets.

Although there are a number of benefits to investing in a unit trust, such as the fact that a unit trust may be purchased for less than R100 a month, it is vital to remember that economic markets fluctuate. In order to gain the most from your unit trust investment, equity unit trusts should ideally be kept for a period of three to five years at least.

This way the daily fluctuations are ignored and you can benefit from the expected gradual long-term growth in the market.

Why a Unit Trust

So can unit trusts actually make you rich. Some investment experts say a yes, but don’t expect to make money overnight.

Over the past five years, the average general equity fund has produced about 28% while the All Share index about 25%. So the average professional fund manager produced a return of about 2% more than an index tracker could have delivered.

Unit trusts can certainly help people foster their savings and grow wealth. When you invest in an equity fund, you are investing in a basket of companies a professional investor believes will rise in value.

Benefits of unit trusts

• Unit trusts offer you the flexibility to tailor a portfolio to suit your specific investment needs and time horizon.
• You can buy them direct or through a financial adviser
• You can access the stock exchange without needing familiarity or skill of investing in equities.
• The ability to spread your investment across markets sectors and economies greatly reduces your investment risk.
• Money invested in unit trusts are effortlessly accessible, especially in times of emergency.

Unit trusts are tax-efficient, providing interest income tax exemptions, capital gains tax exemptions and tax-free dividends.

Unit Trust Advantages

• Unit trusts are a cost effective way to access a share portfolio.
• You get full-time specialised management of your money.
• Unit trusts are flexible and transparent. Investors are not tied in and can access their money at any time.
• Unit trusts are one of the most tax-efficient ways of investing (providing interest income tax exemptions, capital gains tax exemptions and tax free dividends).
• Stimulating capital growth opportunities over the medium- to long-term.