Introduction to Unit Trusts

Unit Trusts offer you the ability to invest in a mix of the major asset classes - equities (shares), bonds, listed property and short-term money market instruments. When you invest in a unit trust you are effectively lumping in your money with other investors and paying a fund manager to invest it wisely according to a specific mandate.

Investors can invest much smaller sums of money in a unit trust and thus achieve a greater level of diversification than is usually practical when buying shares through a broker.

Unit trusts were first introduced in 1965. Investors were encouraged to buy for the "long term" (five years) and had a handful of unit trusts to choose from. The unit trust industry has changed enormously over 40 years. There is a broad choice of funds offering different combinations of capital growth and income across different market sectors. Some funds are now designed specifically to benefit from market timing and sector rotation.

Unit Trusts though, should generally be viewed as medium-to-long term investments, reducing your exposure to short-term volatility and risk and allowing you to take advantage of underlying trends in market sectors.

Many of the attractively named investment products offered in South Africa are based largely on a managed basket of unit trusts. In theory the extra layers of cost you incur are justified by increased returns at decreased risk. However, with your investment returns often measured in a few percentages above inflation, the effect of often insignificant looking percentage-based fees compounded over a few years can have a major impact on your wealth.

Large institutional investments from pension funds and packaged investment products have tended to dominate SA unit trusts, promoting a culture whereby it has often been difficult for the individual investor to access reliable information and transparent service. At Equinox.co.za we believe the times are changing - our up-to-date and comprehensive profiling of unit trusts and 24hr trading system allow the individual investor to successfully manage their own investments and enhance their returns directly through compounded cost savings.

The thirty or so unit trust Management Companies in South Africa offer over 830 different unit trusts. Each unit trust advertises a specific objective and investment guidelines within which the fund manager may use discretion. Often a market index (such as the JSE All-share Index) will be targetted, which the fund will attempt to track and outperform.