Disadvantages of Unit Trusts
- Unit Trusts are not allowed to borrow, therefore reducing potential returns.
- Bid/Ask prices exist - with the price that you can buy a unit for usually higher than the price you can sell it for - making investment less liquid.
- Not good for people who want to invest for a short period.
The constructed Conventional Unit Trust Portfolio was able to generate returns of +12.35% while the Islamic portfolio returned +8.72%. In comparison to EPF's 2017 dividend of 6.90% for Conventional and 6.40% for Islamic, both unit trust portfolios were able to outperformed EPF.
Investors will have two options for the dividend from the unit trust. The first option is to receive it in cash, as shown in the example earlier. The second option is to re-invest the dividend into Dynamic Equity Fund. Re-investment means that the RM200 will be converted into additional units in Dynamic Equity Fund.
Best performing unit trusts in South Africa 2021
- Old Mutual Gold.
- Anchor BCI Global Equity.
- Nedgroup Inv Mining&Res.
- Sygnia FAANG Plus Equity.
- Ninety One Commodity.
- Allan Gray Balanced Fund.
- ABSA Money Market Fund.
- Coronation resources. Investing in a unit trust requires an open-minded individual with a bold heart.
The income from unit trusts and OEICs is always taxable regardless of the share class or whether the income is actually taken or reinvested. However, it may be tax free if it falls within one of the allowances (dividend allowance or starting rate for savings/personal savings allowance).
There are generally 3 ways to invest in unit trusts funds, namely through Cash, Regular Savings or Investment through your EPF fund.
- Cash or Lump Sum Investments. This is where an investor has a lump sum amount to invest into a unit trust fund.
- Regular Savings.
- EPF Members Investment Scheme.
There is always an argument
between buying a stock or buying a
unit trust. Before saying that which one is better, let's look through the characteristics of both
stocks and
unit trust for better understanding.
Stocks.
| Unit Trust | Characteristics | Stocks Investing |
|---|
| No, in all decisions | Controllability | Yes, in all decisions |
The firm could buy stocks, mutual funds, trade ETFs (exchange-traded funds) or hold REITs (Real Estate Investment Trusts) for the account. You could open the trust account directly with a mutual fund company such as Vanguard. Vanguard has varying rates and fees for different types of investments.
Your money will be in safe handsWhile every unit trust is managed by a fund manager who makes decisions on your behalf, they can't access your cash.
By law you can save R36 000 every year or R500 000 over a lifetime in a tax-free vehicle such as a unit trust. All interest, capital gains and dividends you earn will be completely tax-free (only applicable to SA tax residents).
- High-yield savings accounts. Online savings accounts and cash management accounts provide higher rates of return than you'll get in a traditional bank savings or checking account.
- Certificates of deposit.
- Money market funds.
- Government bonds.
- Corporate bonds.
- Mutual funds.
- Index funds.
- Exchange-traded funds.
Unit trusts are a form of collective investment scheme, which pools money from many investors who share the same financial objectives. They are long-term investment vehicles, most suited to investors who want potential long-term capital growth and are able to tolerate volatile short-term fluctuations in prices.
To qualify as a fixed unit trust, the Unit Holders must at all times be entitled to the income and capital of the trust (after the payment of normal expenses). The Trustee must not have any discretion as to the distribution of income or capital.
My Account > Investment Holdings > click on 'Historical Transactions' button > Go to 'Unit Trusts' tab > Click on "Buy" tab. You will be able to view the dividend payout that had been reinvested in units under your FSMOne account under 'Remarks' column.
If a fund you invest in does go bust, the platform will work to arrange the return of the correct amount of asset to you. This is one of the reasons most investors should be very cautious about unregulated investments such as minibonds, which promise high interest rates but have little to back them up.
Here are three ways you can evaluate the performance of your unit trust funds:
- Calculate the total returns.
- Compare a fund's performance against its benchmark index.
- Consider performance relative to risk taken.
- Conclusion: Be an informed investor.
Real estate investing can be lucrative, but it's important to understand the risks. Key risks include bad locations, negative cash flow, high vacancies, and problem tenants. Other risks to consider are the lack of liquidity, hidden structural problems, and the unpredictable nature of the real estate market.
An ETF, or an Exchange-traded Fund, is an index-tracking investment tool that is traded in a public market. With a Unit Trust, individual investors pool their money into a Unit Trust, and then the fund manager oversees the fund by investing in individual securities, such as stocks or bonds.
