Unit Trust – Compare Unit Trust Performance South Africa
Investing can be confusing, especially with the numerous options offered by banks and other financial institutions. One of the most effective and popular investment vehicles is the unit trust because it’s convenient and easy to maintain.
What is a unit trust? How does it work? What are the pros and cons of investing in one? What is the best unit trust to invest in 2021? Read on and get to know the answers to these frequently asked questions by new investors.
What is a Unit Trust?
A unit trust is an investment portfolio wherein it’s managed as a Collective Investment Scheme. The portfolio is divided into parts called ‘units’ and these are the portions bought by investors.
Each unit represents a certain amount of share of the underlying assets in the portfolio. The units reflect the current market price of the underlying assets, divided by the total number of units issued by the trust.
A unit trust is ideal for those who want to invest and save money or create an additional income stream. When applying for a unit trust, make sure you’re willing to invest non-retirement savings in a slightly riskier but more diversified and professionally managed portfolio. If you’re saving for your retirement, you may be better off applying for a retirement fund.
How Does a Unit Trust Work?
In a unit trust, your money is pooled along with the investments of other clients in one large fund. A professional fund manager then handles the account and invests the money according to the risk profile and terms agreed upon with the investors.
Unit trusts are under the governance of the Collective Investment Schemes Control Act. Under this scheme, unit trusts are mandated to appoint an independent trustee who checks if the fund is run properly.
Some unit trusts give the option to reinvest the interest and dividends earned in the fund. Depending on your preference, you can allow the fund manager to automatically reinvest your earnings and increase your overall portfolio capital.
Upon death, investments in unit trusts are counted under your estate, thus they’re subject to Estate Duty rates.
Pros and Cons of a Unit Trust
Just like any other investment vehicle, there are advantages and risk factors involved in putting money in a unit trust. Here are the topmost aspects to consider before investing in a unit trust.
- Taxation
You won’t enjoy tax deductions on unit trust investments unless it’s placed under a tax-free savings account. Returns earned on unit trusts are taxed. Foreign dividends, income tax, and rental income are all taxed, depending on the nature of the business. There’s also a dividend withholding tax and capital gains tax to deal with.
- Accessibility
What makes a unit trust friendly to clients is that it has a low entry rate. Some institutions require only around R200 to R300 minimum monthly contribution to keep the fund running.
Additionally, you can access a part or all of the units you own anytime you need to. You just have to send a withdrawal request to your service provider so they can prepare your money on time.
- Variety
There are thousands of unit trusts in SA to choose from, each with different investment choices, rates, terms, risks, rewards, and complexities. You don’t have to comb through every one of them, especially if you know your risk tolerance and financial objectives for investing in unit trusts.
- Costs
Sadly, South Africa has one of the highest fees when it comes to unit trusts. According to reviews, an average total expense ratio of 1.6% per annum is expected on unit trusts. This doesn’t even include the platform fees and expert advice which can add as much as 1.5% per annum. With these fees, you’ll have to think carefully about which unit trust to invest in to make sure you’ll be making more from it in the long haul and your gains won’t be eaten by fees and taxes.
- Legality
How unit trusts are run is based on the fund’s mandate. However, unit trusts are also covered by a legal framework established by the SA government to prevent fraudulent and illicit investment practices.
- Diversification and exposure
These are the main advantages of unit trusts. An investment portfolio should have a diversified asset class that includes stocks, bonds, properties, and cash. Unit trusts can give you instant diversification and access to the global market.
When the stock market is performing poorly, South Africans have the option to invest in unit trusts. Many unit trusts provide instant portfolio diversification as well as exposure to international markets. Doing these by yourself can be too taxing as you have to do a lot of research and go through a lengthy process before you can find the perfect match suitable to your investment preferences and convenience.
The South African market is only a small part of the global economy. This means you’re missing a lot when it comes to exposure in international assets if you put money only in local stocks. A unit trust can expand your horizons quicker than you can imagine.
- Management
Investing in a unit trust means you’re tapping the skills of a financial professional to manage your money. This gives the assurance that your investment is in the good hands of someone who has years of experience handling a huge fund. The service comes at a cost, but it’s better than worrying about when and where to invest.
Take note of the investment style of the fund manager. Some have an aggressive stance towards investment, presenting higher rewards in exchange for higher risks. Some offer more conservative investing methods in exchange for lower risks. Choose the fund manager appropriate to your risk appetite and investment goals.
- Ease of opening
You may not be contented with the performance of the South African market, so you want to bet on the international bourse. Normally, you’d have to convert rands into your choice of foreign currency, create a bank account abroad, and start investing directly offshore. Generally, you need a huge amount of initial investment for this to happen.
With a Unit Trust, all these complex processes are taken care of by the fund provider. All you need to do is open an account with your chosen financial institution and purchase the desired number of units.
Compare Best Performing Unit Trust in South Africa
How many unit trust funds are there in South Africa? There are more unit trusts in South Africa – around a thousand varieties – than there are listed stocks in the JSE, so just imagine how confusing it can be to pick the best one that suits your investment preference.
To save you the trouble of finding which are the best-performing unit trusts in South Africa, we’ve come up with a shortlist of excellent unit trusts to invest in this 2021.
Absa Unit Trust
Absa Unit Trust helps you maximize the opportunity of growing your money and provide peace of mind that your deposits are safe. Absa offers interest-bearing income, multi-asset equities, property unit trust, regional unit trust, and an offshore unit trust.
Features:
- Minimum monthly investment of R200
- Initial lump sum investment of R200
Rates and Fees:
- Annual adviser fee of up to 3.45%, excluding VAT.
- Annual admin fee of 1.15%.
- No performance fee
Contact Details:
- Phone: 0860 111 456
- Email: utenquiries@absa.co.za
Allan Gray Unit Trust
Allan Gray Unit Trust offers a wide variety of investment options ranging from those with higher earnings potential in exchange for long-term returns to those with lower gains potential but with reduced risks. The most popular unit trusts from Allan Gray are the Equity Fund, Balanced Fund, Stable Fund, and Money Market Fund.
Features:
- Minimum of R500 monthly investment or a single lump sum of R20 000
- Access your money and make changes to your investment preferences without transaction fees or penalties.
Rates and Fees:
- Management fee of up to 1.11%.
- Transaction costs amounting to around .09%.
- Total expense ratio of 1.25%.
- Other expenses of .03%.
Contact Details:
- Phone: 0860 000 654
- Email: info@allangray.co.za
Coronation Unit Trust
Coronation Unit Trust offers long-term growth plans through four fund options: equity funds, multi-asset funds, income and growth funds, and income funds.
Features:
- Investment options for all kinds of risk preferences.
- Offshore investment available.
Rates and Fees:
- No upfront fees
- Annual management fees
- Monthly performance fees
Contact Details:
- Phone: 0800 22 11 77
- Email: clientservice@coronation.com
FNB Unit Trust
FNB offers the Horizon Series Unit Trust which aims to beat inflation and maximize savings and investments. Choose from accounts for maximizing tax-free savings, building a living annuity, growing a retirement annuity, outpacing inflation through an investment account, creating a preservation fund, and preparing an endowment.
Features:
- Stress-tested investment strategies that can stand rough economic times.
- Minimum investment of R300 per month.
Rates and Fees:
- Professional fees excluding VAT.
- Maximum upfront advice fee of 3%.
- Administration fee of .25% annually.
Contact Details:
- Phone: 087 736 3555
Old Mutual Unit Trust
Old Mutual offers 4 different types of unit trusts for those with specific investment needs: Home & Security, Freedom & Adventure, Education & Ambition, and Retire & Save.
Features:
- Online transaction and portfolio management.
- Wide variety of unit trust options to choose from depending on your investment target.
Rates and Fees:
- No initial admin fees for minimum investments of R500.
- Initial adviser fees of up to 0.69% for fixed income funds and up to 3.45% for equity funds.
- Annual adviser fees.
- Brokerage fees.
Contact Details:
- Phone: 0860 234 234
Satrix Unit Trust
There are numerous Satrix Unit Trusts to choose from if you want to invest in local and/or international assets.
Features:
- Wide variety of asset classes to invest in.
Rates and Fees:
- Annual fee for a financial adviser
- Annual management fees
Contact Details:
- Email: helpme@satrixnow.co.za
- Phone: 010 020 2250
Sharenet Unit Trust offers a wide range of investment options for conservative and aggressive investors alike. Whether you’re aiming for a dream holiday or preparing for retirement, there’s a Sharenet Unit Trust that will help you achieve these objectives.
Features:
- Affordable range of prices.
- Full risk spectrum for all risk profiles.
- Experienced team handles customer queries.
- No minimum monthly contribution.
- No minimum lump sum payment.
Rates and Fees:
- Professional fee of up to 1%, exclusive of VAT.
Contact Details:
- Phone: +27 21 154 0001
Stanlib Unit Trust
STANLIB offers numerous core funds designed if you want to increase your income, grow your savings, be involved in various market instruments for increased capital growth, or put money in offshore investments without hassle.
Features:
- Wide variety of funds with different risk and growth performances.
- Investment period ranging from 1 month to 7 years.
- Minimum investment of R500.
Rates and Fees:
- Annual fee may reach up to 1.15% per annum.
Contact Details:
- Phone: 0860 123 00
- Email: contact@stanlib.com
How to Choose the Right Unit Trust
Of the numerous unit trusts available in the market, choose one that can get you the closest to your financial goals.
– How long is your planned investment timeframe?
– Do you have the patience and leeway to park your money in a unit trust for 2, 5, or 10 years?
– How risk-averse are you?
– How diversified do you want your portfolio to be?
Having definite answers to these questions will make it easier for you to choose the appropriate unit trust to put your money into.
Final Thoughts
Unit trusts are convenient investment instruments that provide instant portfolio diversification, exposure to international markets, and expert fund management. The service comes at a cost but it’s generally better than doing everything by yourself.
Check the risk profile and the background of the fund manager handling the unit trust. They have different experiences and investing strategies that may or may not be appropriate to your preference.
Always ask for the information sheet before signing up for a unit trust. You’ll find everything you need about the fund there.
MoneyToday South Africa is a financial website aims to assist consumers with comprehensive information on personal finance, loans, insurance, investment opportunities, financial guides, tips and comparison of a large number of finance and insurance companies on the South African market.
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