In order to choose the “right” fund for you, there are several questions you should ask yourself: What is the purpose of my investment? What do I want from it? For how long do I want to invest? What type of investor am I – conservative, balanced or aggressive? Do I have a preference for any particular sector of the economy – property, resources, financial, industrial or IT? Do I need income from the investment?
You can invest a lump sum or, alternatively, a regular amount on a monthly basis, starting from R200 per month.
By investing monthly, you enjoy the benefit of “rand cost averaging” – as the price of your unit trust shares rises or falls, you will buy less or more units for the same monthly investment amount.
Over a longer period, your shares should average out at a lower cost than the amount you paid for them.
All unit trust companies have many different types of funds, each with its own specific objective and investment specialists, covering a specialised or general range of selected shares. This means that your money is managed on an ongoing basis and is part of a large ‘pool’ of funds under that specific management team.
Choosing a company
When selecting a company in which to invest, you should examine its track record, establishing how long it’s been in business, the total value of funds under its management, how it’s performed in comparison with similar companies or funds and, finally, if there is someone with whom you can discuss your requirements?
Having made your selection, you need to understand the costs. These involve initial fees and ongoing fees. Research how these charges compare with similar funds.
It is important to understand that a unit trust is “open-ended” but you are still buying shares in listed companies.
The price at which you buy your shares is described as net asset value (NAV) which is not affected by supply or demand, as is the case with ordinary shares. This simply represents the total value of the fund’s assets, including any cash or cash equivalents which it holds, divided by the number of shares in circulation and adjusted for fees.
As the total market value of the assets rises or falls, the net asset value will be similarly affected. The major advantage of holding unit trust shares is that there is always a guaranteed buyer for your shares – the management company has an obligation to buy them back from you.
Having examined this information and prepared yourself as a unit trust investor, it is important to realise that this is not a comparable investment to one with, say, a bank. Banks guarantee your capital on the maturity of the investment and pay interest on your investment while it is held there.
Unit Trusts represent the ideal savings vehicle for serious long-term investors.
Here are some guidelines to follow when purchasing units trusts.
- The investment must be viewed in the long-term, seven to 10 years or longer
- This is a wonderful savings vehicle for children’s education
- Prices will fluctuate depending on whether markets are going up or down and the best time to buy is when markets are down
- Don’t panic and cease your contributions when markets fall. Remember it’s a good time to double up
- You can buy a range of unit trusts by using linked investment services products, which allow you to select the funds and then switch between one fund and another at either no cost or a nominal cost
- You can also buy unit trusts where you permit the investment house to make the changes on your behalf
For investors who have limited know-ledge of equities, unit trusts offer an ideal opportunity to buy a growth investment involving little corporate risk but some market risk, which is why they need to be viewed over the long-term.
BRYAN HIRSCH, the director of Bryan Hirsch Colley & Associates, has published books and written for many of South Africa’s top business and financial publications. He is a guest on SAFM every Tuesday morning discussing personal finance issues, and hosts You and Your Money every Monday evening on Summit on DSTV. Contact Bryan Hirsch Colley & Associates on +27 11 778 4633.