Unit trusts?

Finweek English Edition - - INVESTMENT -

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

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