Unit trusts are a flexible investment vehicle, suited to medium-to long-term investments, because you have easy access to your funds.
There are no minimum investment periods when you invest in a unit trust, and you can make unlimited withdrawals from a unit trust fund, at your discretion.
“Depending on the type of fund in which you invest, it is considered prudent to leave your money invested for about three to five years to recoup the investment costs and so you can earn a decent return,” Gerrit Viljoen says.
Unit trusts are governed by the Collective Investment Schemes Control Act.
You can cede a unit trust completely or partially as security for a loan.
You cannot nominate a beneficiary on a unit trust investment. In the event of your death, the investment will be paid into your estate.
You pay tax on the interest you earn. “This can be tax effective because, depending on the type of fund, the interest earned may well fall below your tax exemption on interest,” Viljoen says.
The tax you pay on your returns will depend on the applicable exemptions and on your marginal tax rate. The exemption on interest income for the 2010/11 tax year is R22 300 if you are under 65 years old and R32 000 if you are 65 or older.
Any increase in the value of the units is taxed as a capital gain when you dispose of or sell the unit trust. The capital gains tax exemption for the 2010/11 tax year is R17 500.