Budget, save, create a spending plan; these are topics that we often try and reinforce and while understanding what saving is all about, you also need to be aware of where you can put this money. We want to delve deeper into the different investment funds you can get.

For this blog, we will be looking at unit trusts.

What is a unit trust?

A unit trust is a type of pooled fund in which many contributors can invest their money. Investors can choose which fund to place their money into according to the fund’s investment objective and investment approach. A fund manager, whose task it is to watch over the fund and report their findings to the investors, supervises these portfolios.

Unit trusts are an easy and effective way to save money. With their exposure to the stock exchange, they can be used as a tool for building a successful and diversified investment portfolio.

How does it all work?

As mentioned before, a unit trust is a fund in which thousands of investors contribute money. Each trust belongs to a management company who then buys shares from the Johannesburg Stock Exchange (JSE) on behalf of the investors. The investor does not receive shares in the JSE per se, rather the shares that have been bought are combined into a portfolio, divided into equal parts known as “units” and then distributed accordingly amongst the investors.

The JSE represents the main sects of our economy i.e. gold, other mining, mining houses and industry, which are represented by unit trusts. A fifth sector – liquid assets or cash – is what will complete each portfolio.

Anyone can invest in a unit trust. Investors are able to choose which sector they want to invest in, either by investing an initial lump sum into the portfolio, or putting money into it monthly.

Advantages of unit trusts

  • This is a good investment option for those with little financial knowledge,  you don’t have to worry about making investment decisions as the fund manager will do this for you
  • You can choose the type of investment you want and easily diversify your investments
  • Your exposure to risk is less because your investment is spread across lots of different shares
  • You don’t have to put a large lump sum of money into the portfolio, you can contribute monthly