Collective Investment Schemes (unit trusts) are “funds” where the money from many investors are pooled together and invested in assets like shares, bonds, property and cash. This means that investors do not have to manage individual investments themselves, but rely on the skills of appointed investment professionals to manage the fund. Investors hold equally priced units where the price of the unit is based on the value of the underlying investments held in the fund.
Some funds invest in the shares of companies, which mean that part of their profits will be paid out periodically in the form of dividends. Other investments – like government or corporate bonds – make periodic interest payments. You can choose to receive these distributions, or use the money to buy more units and grow your investment.
There is no tax paid within a unit trust vehicle. You must declare and will be taxed on the capital gain made from a unit trust when you sell it. Interest income received, must be declared annually and will be taxed along with other interest that you have earned.
Unit trusts will deduct dividend withholding tax from investors, as legally required, before dividends are paid to the investor. You will receive a statement every year that clearly states the interest, dividends and capital gain (if you have sold the investment) that you have received.
Unit Trusts are strictly regulated by the Financial Services Council Association(FSCA), the Association of Collective Investments, and each collective investment scheme has trustee(s) or custodian who’s responsibility is to ensure that matters of the scheme are run in a professional and prudent manner. You’ll enjoy wholly transparent fees, charges and investment performances.
A Unit Trust spreads your money across many investments, reducing the chances of you suddenly losing large amounts of money should the markets change. For example, if one of the companies in which you have invested suffers a severe setback, only a small percentage of your investment will be affected as it is spread across multiple companies.
It is easy to monitor the performance of Unit Trusts. You can access your statement online or receive regular updates from your fund manager. You can also track the performance of your Unit Trust fund on a daily basis on investment websites or via the press.
You don’t need a large amount to start investing. On average monthly debit orders usually start at around R500 (monthly debit can be as low as R 199). By investing a little more every month, you can start to grow your investment steadily. The reason Unit Trust funds exist is to make it easy for anyone to invest in any part of the economy they choose to and to benefit from professional fund management.
Investors looking into Unit Trusts will find a multitude of options available in the South African market, making it difficult to choose. If you are not conversant with investments or Unit Trusts, it’s worth making use of a registered financial advisor to assist you.
Unit Trust funds are invested across a range of different investments, over various geographical regions, providing different risk with various financial institutions. There is no guaranteed return or a guarantee that you will not lose money. However, with an investment term over at least a five-year period, a return is generally achievable and probable, with the correct investment strategy.