1. What is a Unit Trust?
A unit trust is a collective investment scheme where your money is pooled with that of other investors and managed by professionals. Instead of investing directly in individual stocks, bonds, or other assets, your money is divided into "units," each representing a share of the fund’s investments.
Pooling of money: Your money is combined with others.
Managed by professionals: Experts make investment decisions for you.
Units: Your share in the fund is measured in units.
2. How Do Unit Trusts Work?
In a unit trust, the fund manager invests the pooled money across a variety of assets based on the investment strategy of the fund. This could include:
Equities (stocks)
Bonds (government or corporate debt)
Property (real estate investments)
Cash and money market instruments
The value of your units changes over time, depending on how the underlying assets perform. The more successful the investments, the higher the value of your units.
3. Types of Unit Trusts in South Africa
There are several types of unit trusts, each with different investment goals and risk levels. Here are some popular ones:
Equity Funds: Invest primarily in stocks or shares. Higher risk but potentially higher returns.
Balanced Funds: Mix of equities, bonds, and cash. They aim for moderate risk and returns.
Income Funds: Invest in cash or bonds. Lower risk, more stable returns.
Money Market Funds: Focus on short-term investments like Treasury bills. Very low risk.
Specialist Funds: Invest in specific sectors like real estate or emerging markets.
4. Benefits of Investing in Unit Trusts
Unit trusts offer many advantages for South African investors:
Diversification: By pooling funds, you automatically diversify your investments. This reduces risk because your money isn’t concentrated in one asset.
Professional Management: Experts handle the investments for you, making it ideal for people who don’t have time or knowledge to manage their own portfolio.
Affordability: You don’t need a large amount of money to start investing. Unit trusts allow you to invest with as little as R500.
Liquidity: You can buy or sell units fairly easily, offering flexibility if you need access to your money.
Tax Efficiency: Unit trusts in South Africa are tax-efficient. They are not taxed at the fund level, meaning you only pay tax on income when you sell the units or receive distributions.
5. How to Invest in Unit Trusts
Investing in unit trusts in South Africa is simple:
Step 1: Choose a Unit Trust Fund - Pick a fund that aligns with your investment goals, risk tolerance, and time horizon.
Step 2: Open an Investment Account - You can open an account through banks, asset managers, or online platforms.
Step 3: Start Contributing - Make an initial investment, then set up regular contributions to grow your portfolio.
Step 4: Monitor Your Investment - Keep an eye on the performance and adjust if needed based on your goals.
6. Costs of Unit Trusts
While unit trusts are relatively low-cost, there are some fees to be aware of:
Initial Fees: Some funds charge a fee when you first invest.
Annual Management Fees: These are ongoing fees paid to the fund manager for handling the investments.
Performance Fees: Some funds charge a fee based on the fund’s performance above a certain benchmark.
Transaction Fees: Fees for buying and selling units.
Make sure to compare the fees of different funds before investing. High fees can lessen your returns over time.
7. Risks of Unit Trusts
Although unit trusts offer many benefits, they also come with risks:
Market Risk: The value of your investment can fall if the market or economy performs poorly.
Liquidity Risk: Although unit trusts are generally liquid, in extreme market conditions, it may take longer to sell units.
Management Risk: If the fund manager makes poor investment decisions, your returns may suffer.
Inflation Risk: If your investment doesn’t grow at a rate higher than inflation, your purchasing power could decrease over time.
8. Common Mistakes to Avoid
To make the most of your unit trust investment, avoid these common mistakes:
Chasing past performance: Past returns don’t guarantee future results. Always check the fund’s current strategy and performance.
Not diversifying enough: Investing in just one unit trust or asset class can be risky. Diversify across different types of funds.
Not considering fees: Even low-cost funds can have hidden fees. Always look at the total cost of ownership.
Neglecting long-term goals: Unit trusts are ideal for long-term investment. Don’t panic during short-term market fluctuations.
Unit trusts are an excellent way to grow your wealth in South Africa. They offer diversification, professional management, and relatively low entry costs. However, it's important to choose the right unit trust, understand the risks involved, and avoid common mistakes. With the right strategy, unit trusts can help you achieve your financial goals.
Questions after the interview:
At the end of an interview there is usually an opportunity where you can ask any questions you might have. This is a great opportunity to show the interviewer that you are interested in the position as well as the company. It is a good idea to prepare a few questions before the interview – this can be done while you are doing research on the company.
Your questions should show the interviewer that you are a good candidate for the position. Try and avoid questions that are based on your personal needs and preferences, for instance:
- How much leave will I get in a year?
- Will I be considered for promotion in my first year?
- When will I get an increase?
- What time can I leave in the afternoon?
These questions are inappropriate at this stage and will probably raise concerns on the side of the interviewer. Should you be the successful candidate then all these questions will be answered in your letter of appointment so don’t waste this opportunity by asking these basic questions.
If the position is an entry level job or very junior then you are welcome to ask questions in line with the position, for instance:
- Why did the previous person leave the position?
- What would the successful person be tasked to do in a typical day?
- How does this position fit into the department and / or company?
- Could you explain the company structure to me?
- Is there any further education assistance or support?
If the position is more senior then you can prepare question around the following themes:
- current issues that will face the successful candidate;
- inter-personal challenges in the department;
- any process, technology or people challenges that needs to be attended to urgently;
- key result areas that need urgent attention in the first few months;
The above information should get you started. Prepare a few questions so that you can show your worth. Good luck with your interview!
