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Unit trusts a door into blue chips

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INVESTING in a unit trust gives you access to something which, as an individual, you’d need a decent chunk of money to buy: blue-chip shares.

For an individual with a limited amount of cash to invest, some of the better performers on the market were simply out of reach until the unit trust concept came along a couple of decades back.

Unit trusts pool the resources of thousands of individual investors. Each unit trust is run by a fund manager, who takes the funds and invests them in a selection of stocks on the market.

Different unit trusts have different purposes: some invest only in property stocks, for example, some invest in commodity stocks, some go for safe, solid performers, while others want the best return and so mix in some slightly more risky stocks that could offer handsome returns.

Most unit trusts are ‘general’ funds which invest more or less equally in the main sectors on the Johannesburg Stock Exchange: gold, other mining, mining houses and industry.

These investments are combined into a portfolio, which the fund manager then divides into units. He or she allocates each investor a number of units in proportion to the amount invested.

You can give a fund manager a chunk of money at one time to invest for you – for example, if you get a bonus or inheritance. But most unit trust investors commit to stashing away a certain amount each month.

Benefits:

* You can invest relatively small amounts to get access to excellent stocks.

* Unit trusts are run by experienced managers with far greater understanding of the share market than the average investor; they kep an eye on the markets and buy and sell as needed on your behalf.

* The ‘bouquet’ feature spreads your exposure across companies and sectors. This cushions the fluctuations of the market to some extent, reducing risk.

* Although unit trusts are not short-term investments – the best plan is to leave your funds to grow for a minimum of five years – they do give you quick access to your money. You just have to provide a written request and the unit trust manager will sell your units; your money will be paid out within three to five days.

Interesting facts:

* At the end of 2012, there were 967 unit trust funds in South Africa – at the end of December 1997, there were only 149;
* The total amount of funds invested amounted to R1.23trn at the end of December 2012, up from R45.5bn in 1997. 

- Fin24

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