Unit Trusts

Unit Trust Funds

Introduction

In March 2003, legislation in South Africa was changed, adapting to the growth and diversification of the financial services industry. The old Unit Trusts Control Act of 1981 was replaced by the Collective Investments Schemes Control Act No. 45 of 2002. One of the many changes included the renaming of "unit trusts" to "collective investments" and "units" to "participatory interests".

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Benefits of investing in Collective Investments

Easy and affordable investment

Collective investments are a very convenient and low-cost way of investing in markets which you otherwise would have found difficult to access. You can also share in the rewards of the JSE Securities Exchange SA and other markets without running the risks of direct investment. Investors can switch portfolios as and when their needs and risk profiles change and they can increase, stop or decrease debit orders without penalties.

Diversification of risk

With a relatively small investment, a collective investment provides access to a broad spread of different shares and sometimes asset classes, thereby reducing risk.

Professional management

Experts experienced in the investment arena are managing your money on a daily basis and ensuring your piece of mind.

Accessibility

Collective investments are liquid and easily accessible. You can sell all, or part, of your investment at any time. However, we recommend that an investment in collective investments should be viewed over a medium- to long-term of 3 - 5 years or longer.

Flexible investment options

Lump sum investments can be made at any time during the life of the investment. Once your account has been opened, you are able to invest any additional amounts to top up your investment balance.

Debit order investments A regular monthly investment into your investment account has the benefit of rand cost averaging where additional participatory interests can be gained during times of market weakness. A debit order investment also allows you the opportunity to invest in a long term savings plan for the financial goals you have in mind.

Switching With the wide range of portfolios on offer, switching between different portfolios can be done at little or no cost.

Cash flow plan The cash flow plan choice has two different options. The first option allows you to phase money into one of the equity portfolios over a set period, again providing rand cost averaging to the investment. The second option provides for regular withdrawals from your investment account which could be used to add to your existing income level.

Safety and transparency

The collective investment industry is strictly regulated by the Financial Services Board (FSB), the Association of Collective Investments and each collective investment scheme manager's trustee/custodian. You enjoy total transparency of fees, charges and investment performance.

Tips for successful investing

There are various aspects you should consider before making your investment. These include identifying your goal, establishing a time frame and setting realistic goals and lastly identifying your level of risk according to your current responsibilities.

Understand the volatility of return associated with different investment types.

Shares

Are usually identified as having the potential for the highest return of all the investment classes, but with a higher level of risk i.e. share investments have the most volatile returns over the short term. An investment in this type of asset should be viewed with a 7 to 10 year horizon.

Property

Has some attributes of shares and some attributes of bonds. Property yields are normally stable and predictable as they comprise many contractual leases, the rentals of which are passed through to investors. Property share prices however fluctuate with supply and demand and are counter cyclical to the interest rate cycle. Property is an excellent inflation hedge as rentals escalate with inflation, ensuring distribution growth, and property values escalate with inflation ensuring net asset value growth. This ensures real returns over the long term.

Bonds

Generally have a lower risk than shares because the holder of a bond has the security of knowing that the will be repaid in full by government or semi-government authorities at a specific time in the future. Corporate bonds can also be included and have a slightly higher risk than government-issued bonds because they are not backed by government funds. The risk of default on corporate bonds is always paramount in the investment decision. An investment in this type of asset should be viewed with a 3 to 6 year horizon.

Cash

Is generally regarded as the safest investment. Whilst it is theoretically possible to make a capital loss investing in cash, it is highly unlikely. Due to its stable nature, cash has a relatively low return in comparison to the other investment classes. One should always take into consideration the effect of inflation on the real return of a cash investment. An investment in this type of asset may be viewed with a horizon less than 3 years.

 

General Equity Portfolios

These portfolios invest in selected shares across all economic groups and industry sectors of the JSE Securities Exchange, as well as across the range of large, mid and smaller cap shares. These portfolios do not subscribe to a particular theme or investment style. The portfolios in this category offer medium to long-term capital growth as their primary investment objective.

Specialist Equity Portfolios

Specialist equity portfolios invest in a narrower selection of stocks where the focus is on specificmarket sectors (financial, industrial, resources, technology) or stock types (growth, value, small cap, large cap). Due to both the nature and focus of these portfolios they may be more volatile than portfolios that are diversified across the broader market. These portfolios aim to provide long-term capital appreciation.

Asset Allocation Portfolios

Asset allocation portfolios invest in a wide spread of investments in the equity, bond, money and property markets. There are prudential, flexible and targeted absolute and real return portfolios. Prudential portfolios may generally comply with prudential investment guidelines for retirement funds (Regulation 28). Flexible portfolios invest in a flexible combination of investments. The portfolios aim to provide capital appreciation together with interest income over the medium to long term

 

Fixed Interest and Property Portfolios

Fixed Interest portfolios invest in bond, money market instruments and other income earning securities and Property portfolios invest in listed property shares, collective investment schemes in property and property loan stock. These portfolios aim to provide interest income over the short-to medium term. Income and bond portfolios also provide the opportunity for capital growth.

Risk Profiled Portfolios

Risk profiled portfolios are made up of varying combinations of some or all of the above assets and provide the opportunity to choose portfolios according to your risk profile