"What is a unit trust?" is among the top 10 financially related questions South Africans search on Google.
This is according to a recent report released by the global search engine.
Fin24 approached Shaun Duddy, manager of product development at Allan Gray, for an answer.
According to Duddy, a unit trust is a type of investment product that provides you with easy access to financial markets. Each unit trust is split into equal portions called units.
When you invest in a unit trust, you buy units which belong to you until you decide to sell them. Your money is combined with that of other investors who have bought units in that unit trust.
Professional investment managers use the pool of money to buy shares, property, bonds, cash, or a combination of these, on local and/or foreign markets, depending on the mandate of the unit trust.
You can therefore gain access to a diverse selection of assets without having to invest very large amounts, and without having to invest in each asset separately. How much your investment grows depends on the performance of the assets the manager invests in within the unit trust, and each unit experiences the same growth.
You can buy more units over time, and you can leave your units to grow.
Unit trusts make investing simpler as the decisions about what assets to invest in are handled by the professional investment manager. They also make investing accessible – many unit trusts allow you to invest from as little as R500 per month.
You can invest in unit trusts for most of your financial goals, from saving for longer-term needs to meeting your short-term objectives. It is important to make sure that your goals and timeframes align with the mandate of your chosen unit trust(s).
If you need help making this decision, it is worthwhile talking to a good, independent financial adviser.