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Should you trust in a unit trust?

May 30 2017 10:30


Unit trusts. It’s one of those things people say on the radio or write about in the business press. To many of us it’s a pretty meaningless word, something from that jargon-ridden world of banking, finance and investment - not for ordinary people.

But is this true? While many investors are wealthy, one does not have to be rich to invest. Investing and retirement planning are for anybody with an income. In fact, saving is as critical as paying off your car, rent or bond every month and the alternative most people would rather not contemplate: ending up a financial burden to your family or turning to the state for help in your old age or if you get sick.

So it really is worth becoming familiar with unit trusts. The very reason they exist is to make it easy for anyone to invest in any part of the economy they choose to and to allow professional managers to work on the detail.

Unit trusts are really just vehicles for investment, a trust set up as an investment fund of which you can buy a number of units. It is the pooled resources of a number of investors, managed by a professional fund manager who buys and sells, for example, equities (shares in listed companies), and keeps them as part of a portfolio jointly owned by the holders of the units of the trust. In its most basic terms it’s as simple as that.

The number of units in the trust that you might own depends on the cost of the unit and the size of your cash investment. The cost of the units depends on the contents and the performance of the portfolio held by the trust.

Unit trusts were designed to be simple and safe. A unit trust with a fund manager such as Sanlam is incredibly simple to buy into and sell out of later when you need your money. A unit trust is highly regulated by financial watchdogs for your protection, and they can cater for a varying scale of investments, from a small monthly investment to a larger once-off investment. They also benefit from the attention of professional fund managers whose job it is to ensure the unit trust performs as promised.

Fund managers such as Sanlam understand that most working people are too busy doing their jobs to spend their days watching the minutiae of movements on the markets and to be consistently watching out for possible threats or opportunities to their portfolio. With a unit trust, you’ve got somebody doing that for you, which means you can focus on doing your job while your investments are also working hard for you elsewhere.

It is worth adding a note of caution. There are a plethora of unit trusts out there, and some are better than others! It’s worth checking what fees they charge (for the management of the fund, for advice and for administration) and what kind of track record the fund manager has. A fund will only perform as well as it is managed, after all.

The simple solution is to look for a well-trusted fund manager with a long history and culture of careful fund management such as Sanlam. That will allow you the peace of mind to not only do your job with your full attention, but to know that your future will also be comfortable. That alone is worth its weight in gold. 

NEXT ON FIN24X

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