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If the thought of picking shares fills you with dread, how about investing in unit trusts?

by , 10 March 2014

As a consumer, you use a wide array of financial products. You buy insurance for your car and house. And chances are you have a bond on your home. But when it comes to shares, the very thought of selecting a few to invest in can put many people off. But that's where unit trusts come in. They do the picking for you. Let's take a closer look at the basics of unit trusts…

What is a unit trust fund?

Unit trust funds are simply a way of pooling your money with many other investors and giving that money to a professional to manage for you, John Stepek in Money Week explains.

One of the big plusses to investing in funds is you can get exposure to a much wider range of shares or other assets that you could if you invest alone.

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And not just that. If you don’t have a large lump sum to buy shares with, that’s not a worry with funds. You can invest with a small amount. You can opt for a lump sum investment or even set up a monthly debit order into your fund.

This makes unit trusts very accessible to most people.

By investing in a fund you essentially have a ready-made portfolio. You don’t have to worry about picking the shares. You don’t have to invest your time in researching those picks. And you don’t have to deal with a stockbroker.

There are numerous advantages to investing in funds. But before you leap in, you need to know what type of fund to invest in.

There are two main types of unit trusts

Whilst the number of funds to invest in is huge, they fall into two main categories. You have to decide whether to invest in a passive fund or an active fund.

So what’s the difference?

A passive fund aims to copy the performance of the underlying market. This could be the JSE Top 40 Index for example.

An active fund aims to beat the performance of the underlying market. The manager of the fund will try and use their investment skills to achieve that. But of course, this isn’t a guarantee. Fees will also be higher with active funds.

So there you have it, the basics of unit trusts.



If the thought of picking shares fills you with dread, how about investing in unit trusts?
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