Unit trusts are a great way to invest in the stock market and come with an array of advantages
‘Ordinary’ unit trusts have been around since 1965, but many new and innovative alternatives are now available.
This range of options lets you choose which type of unit trust suits your investment profile and allows you to spread your investment risk, highlights the research team at The South African Investor
Let’s look at two of the different types of unit trusts available…
Two types of unit trusts available to invest in
#1: Normal unit trusts
They also go by the name of “Collective Investment Schemes” (CIS). You buy units at the ruling price of the day. You can find the price for the units in newspapers and online. This is the selling or buying price you pay. It doesn’t include transaction fees.
You can choose between local or offshore equities, bonds, property and money unit trusts, as well as multiple asset types. The funds are either passively managed funds – tracking an index – or actively managed seeking to outperform the chosen index.
Expect upfront fees around 5% and annual of fees around 1% (both before VAT) of the monthly market value. A performance fee is sometimes payable if the unit trust outperforms the chosen benchmark. A point worthwhile checking.
#2: Fund of funds
This is a normal unit trust fund that invests in a range of other unit trusts. These could be funds within a unit trust management company’s own range (an internal fund of funds) or they may be a selection of funds managed by various unit trust management companies (external fund of funds).
A fund of funds can’t invest in less than two underlying unit trusts.
They’re also Collective Investment Scheme funds.
When you invest in a unit trust fund of funds, you buy units in a fund. The fund uses your money to invest in assets, such as shares, bonds and cash. You don’t directly own the assets of the fund; instead you own units in the fund that amount to a portion of the fund.
The annual charges are higher than a normal unit trust. (These are excluding VAT.) The upfront charges range between 1.85% and 6.85%. Annual charges range from 1.75% to 3.5%.
By getting to grips with the different types of unit trusts available, you can make an informed decision and invest in a unit trust that suits you.