Most Finweek readers should have a vague idea of what unit trusts are, but here’s a handy primer to help you understand the gist of these investment vehicles. Unit trusts, or mutual funds as they are known in the US, are investment products that invest the pooled funds of all the investors that have bought into a specific fund into a range of assets that usually include varying proportions of equities, bonds and money market instruments. That allows any potential investor to purchase units of a particular unit trust fund by either making a single lump sum investment (the minimum lumpsum investment is usually R2000) or by purchasing smaller units on a monthly basis (the minimum monthly investment is usually R300). The beauty of unit trusts is that they allow you to gain exposure to a wide variety of blue chip shares, listed property stocks, Government and corporate bonds and of course money market instruments, without having to make the actual investment decision yourself of what asset to purchase. Each unit trust is managed by a portfolio manager who takes on that responsibility – for a fee of course. The advantage of this is that it allows you to focus on earning money in your own area of expertise, be it plumbing, engineering or running your own business, and allowing the qualified investment professionals to take on the stressful and complex task of monitoring the markets. That way you don’t have to lose any sleep over deciding what assets to buy or sell at a particular time. Forgive me for being a tad cynical, but after almost a decade in financial journalism I have met very few people who have the expertise, tools and access to research to compete with credible asset managers.
However, opting to invest your hard earned cash in unit trusts doesn’t mean that you don’t have to make any decisions at all. In fact, arguably the most crucial decision that an investor needs to make is precisely the one the asset manager cannot make on your behalf. What