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The ins and outs of ‘normal' unit trusts

by , 12 November 2015

If you're looking to invest in unit trusts, normal unit trusts may be your first port of call. These funds are generally straightforward and perhaps the most popular amongst investors.

So what can you expect with these types of unit trusts?

Read on to find out…


What are normal unit trusts?

 
Normal unit trusts are known as Collective Investment Schemes (CIS). They are strictly regulated under the Collective Investment Schemes Control Act.
 
When you buy unit trusts like this, you pay the ruling price of the day. This is different to buying shares and exchange traded funds (ETFs) on the stock market, where the price varies throughout each trading day.
 
There are two ways that a fund manager can determine the ruling price:
 
  1. By using a historic pricing method; or
  2. By using a future pricing method.
 
The historic pricing method is when the unit price is set at the end of the day and all transactions the following day go through at this price.
 
The future pricing method is when the unit price is calculated at the end of the day and this then applies to all of that day’s transactions.
 
But this isn’t the only price you pay. You also need to pay an initial fee and there will also be annual management fees.
 

Types of normal unit trusts

 
There are a wide range of normal unit trusts to invest in, including:
 
  • South African shares;
  • International shares;
  • Bonds;
  • Property; and
  • Money market.
 
You’ll also come across funds that invest in a number of different asset types.
 
There are two types of management for normal unit trusts:
 
  • Passively managed: This means the fund aims to track an underlying index; and
  • Actively managed: This means the fund aims to outperform its chosen index.
 
So there you have it. The ins and outs of ‘normal’ unit trusts.
 
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The ins and outs of ‘normal' unit trusts
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