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Use these three indicators when picking a unit trust to invest in

by , 04 March 2015

If you've decided that unit trusts are for you, the next thing you have to decide is which one.

Firstly, you'll have to decide what type of unit trust. There are a vast array to choose from spanning from funds concentrating on South Africa's biggest companies to more sector specific ones.

Once you know what type of unit trust you want to invest in, how can you weigh up which one's the best for you?

Read on to find out…


Three factors to consider when investing in unit trusts


When it comes to selecting a unit trust, you should pay attention to the following three factors:

  • Momentum;
  • Consistency; and
  • Cost.

Let’s take a closer look at each in turn…


The momentum of a unit trust’s performance


Momentum relates to the performance of a fund over the years.

In comparison to other similar funds, how has it performed? Look at the performance over the past one, three and five years.


Weigh up the short-term consistency of the unit trust


Then have a look at the unit trust’s performance over the past 12-months in comparison to its benchmark index.

You’re looking for a unit trust to have made better returns than its benchmark.


Check the all-important costs of a unit trust


Costs are a big factor to consider when investing in unit trusts. If the costs and fees are high, this is only going to eat into your overall returns.

Have a look at the unit trust’s total expense ratio (TER). This looks at all costs apart from trading costs within a fund.

If you weigh up these three factors when looking at unit trusts, you’ll get a feel for what unit trust looks best for you to invest in.

So there you have it, use these three indicators when picking a unit trust to invest in.

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Use these three indicators when picking a unit trust to invest in
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