Investing in a unit trust Let’s take a look at the three unit trust examples.

2016-08-18 06:00

Unit trust in a nutshell

Unit trusts offers an easy, convenient way to invest. Simply put - a pool of investors’ money is used to invest in financial instruments such as equities (shares) and bonds.

Unit trusts are a cost-effective way to access a share portfolio. Unit trusts continue to offer exciting capital growth opportunities over the medium to long term.

Investing in a unit trust allows the individual and a legal entity (investors other than individuals) to invest in a variety of asset classes using the professional skill of a unit trust company (i.e. fund manager) at reasonable contribution amounts.

Investment contributions can be as low as R500 per month or a lump sum of R10 000.

The alternative to this is for the individual to go directly in the stock market and choose their own asset classes and companies attached to those - however he will need to be knowledgeable enough in order to make informed and sensible investment decisions.

There are multiple unit trusts available which people can choose from. These come already ready-made (i.e. the fund manager has already chosen the assets and the underlying companies attached to these).

The investor needs to select the applicable unit trust according to the risk profile and how much time they have to leave the money invested.

Ideally a unit trust investment should be invested for a minimum period of five years.

The unit trust make-up is based on three ASISA tiers:

· Tier one - Geographical - where are the monies invested - in South Africa or outside of South Africa.

· Tier two - Asset allocation - what the unit trust invests in. Is it the unit trust going to be investing in shares

(also known as equities), property, bonds, commodities, cash, etc.

· Tier three – category (if for example, a unit trust invests in shares, is the unit trust going to invest in financials/industrials/resources or a mix as an example).

Readers are encouraged to consult a fund manager’s fund fact sheets in order to test their understanding. You may access your chosen fund manager’s website for this or consult your independent financial adviser.

Differentiate between a bank account (savings) and a unit trust account (via fund manager)

Both these entities deal with money. It is important you understand the product your money is in. Are you saving or you are investing?

Saving is for rainy days, it’s short term and your money will not give you superior returns. Your money only earns minimal interest in a savings account and the interest is characteristically based on your capital amount.

Investing on the other hand, your intention is to grow your money above inflation.

You want to maintain your buying power. Failure to earn above inflation could result in a short-fall of funds in a long-run for specific goals which could see the individual seeking credit facilities to meet these goals.

It’s important that investors have their estate planning (Will) in order as these investments, form part their estate and will not pay to the families as you cannot nominate beneficiaries.

Please contact your financial adviser/ broker for further information.

You could also contact me on 083 399 3905, my office on 032-944 3051 or e-mail me on juggieg@telkomsa.net for an appointment.

Disclaimer

The information is only intended to be of a general nature and should not be relied upon by any part without obtaining full details from a licenced financial service provider.

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