Unit trusts are collective investment schemes. These are legal vehicles established to protect investors who pool their cash in one fund. The fund, in turn, uses this money to buy a portfolio of assets. You get different types of unit trusts. Some invest in shares, also called equities. Others invest in securities that pay interest, like government bonds. Within these groups, you get sub-categories of funds. Equity funds can specialise in specific shares, for example those of mining and resources companies or retailers.

Benefits of unit trusts

  1. Although a fund manager makes decisions on your behalf, he or she can’t access your cash. The legal structure has been designed to prevent  others from stealing your money. The Financial Services Board regulates unit trusts and the professionals who make the investment choices for you.
  2. A unit trust spreads your money across many investments. This means that if one investment doesn’t work out, you won’t lose all your savings. The flipside of this: if one investment does incredibly well, your entire holding won’t rise in value to that extent. So, there is less risk, but less return. Still, you have the comfort of knowing it is unlikely you will lose all of your money suddenly.
  3. If you need your money, you don’t need to give a long notice period – as you would if you place your cash in a bank account with a good interest rate. You can have your money within days. This is an advantage if you have an emergency.
  4. You can keep tabs on how your unit trust is doing in several ways. You can access your statement online or find performance tables in the media. Your fund manager will also provide a regular update through fact sheets, which you can find on the website of your unit trust provider. The fact sheets provide quick summaries of how your investment is doing and what your money has been used to buy. So, you can see which companies you own if, for example, you have opted for an equity unit trust.
  5. Unit trusts are designed for ordinary income earners. You can invest in lump sums or monthly debit orders. The latter usually start at around R500/month. Lump sums are often in the region of R50 000. Monthly investing makes it possible to build a large amount slowly on a limited income.