The Case for Investing In Unit Trusts
We believe that unit trusts are becoming more and more attractive as
a primary investment option for personal investors.
Ease of Investing
Unit trusts are easy to buy and easy to sell. And now, with the option of placing
orders for unit trusts over the Internet, it has never been easier to buy, sell and
switch unit trusts. Debit orders can be cancelled, increased or decreased without penalties,
unlike assurance company investments.
Costs are being reduced significantly.
In the past unit trusts have been marketed as simple tools to aid novice investors.
But the high initial fees have put many people off. Equinox.co.za (and, in time, others)
dramatically reduced the cost of investing in unit trusts.
Historically, paying a hefty up-front initial fee has put off a lot of prospective
unit trust buyers. We reduce the upfront costs significantly.
for a fee comparison.
Unit trust investment is tax effective
Capital Gains Tax (CGT) was introduced on October 1st 2001. Investors in unit trusts
are obliged to calculate the gain in value of unit trusts, measured from this
date, when the units are sold. Every time a unit trust holder sells a unit trust,
he or she will be obliged to pay CGT at their marginal rate on 25% of the total capital
gain to SARS.
An exclusion rate of R10 000 has been set for "natural persons" which means that
if an individual has had a capital gain of R40 000, tax will be levied on R30 000.
See Tax for more details)
The SA Collective Investment industry is well regulated and provides a high level of consumer protection.
Product providers (including Equinox.co.za)and management companies are subject to strict legislation.
Funds are held to their regulated requirements and mandates.
Collective Investment regulations have proved to be successful in protecting investors from fraud
and the risk of "big bets" taken by fund managers.
(Our regulatory framework is much stronger than the US, for instance,
where the mutual fund industry has been somewhat controversial.)
Investing in unit trusts gives investors access to professional fund managers who have their
performance scrutinised on a quarterly basis, in public. Some fund managers perform better
than others. See our Recommendations section for what we look for.
A unit trust investment gives investors the option of spreading the risk of investing
in the stock exchange by investing a modest amount of money in a wide variety of shares.
Flexibility and range of choice of unit trusts
Unit trusts are suitable for a wide range of risk profiles and can be combined in different
suit differing investment needs.
Unit trust investments offer investors a wide range of investment risk. Equity
based unit trusts offer long term capital growth, asset allocation unit trusts offer a mixture of
growth and income, and fixed interest unit trusts offer income. Investors also have
the option of rotating the sectors of their investments or opting for general equity or index funds.
We do add the following cautionaries:Unit trust investment (or any other type of investment) is not recommended for anyone with debt.
Any debt, including home loans, should be paid off - at least to the extent of being risk-free (ie. the value of
your home should comfortably exceed the amount owing).
Choosing the right type of unit trust is very important. Investors should opt for unit trusts with
risk-appropriate underlying investments. In other words...don't be foolish with your hard-earned money!