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A Fin24 user wants to know how shares, unit trusts and ETFs compare with each other. He writes:
I would like to know: among these three options, namely shares, unit trusts and ETFs, which one is the better option and how do they function?
Chris van Wyk of PSG Hermanus Portfolio Management & Stockbroking responds:
With no background information available about your situation, needs, funds available, risk appetite and investment objective, a rather clinical response will have to suffice.
Shares:
Ordinary shares represent an avenue to buy and own a part of a company directly as an individual.
They are usually listed on a stock exchange such as the Johannesburg Stock Exchange.
Shareholders are entitled to part of the profit of the company, dividends (usually taxable) are paid periodically and such shares are bought and sold through a registered stockbroker.
ETFs
Exchange-traded funds (ETFs) are investment funds bought and sold on stock exchanges much like shares.
An ETF holds assets such as stocks or shares, commodities (like gold or platinum) or bonds (for example issued by companies, the government or Eskom).
ETFs may be attractive because of their low costs, tax efficiency and because their features are much like those of shares.
Unit trusts
Unit trusts are investment funds set up under a trust deed. The trust company appoints an investment manager, which usually manages assets such as property, shares, bonds and cash equivalents in a pool of investments on behalf of unit holders.
Units are bought and sold through the management company and not by stockbrokers.
Investors who want to find the most suitable of these investment options will need the help of an investment professional as there are more than 1 000 unit trusts on offer, more than 500 companies are listed on the JSE and a host of ETFs are available.
All of these have different risk profiles, investment return potential, tax implications, costs of trading and suitability characteristics.
There is no way of saying which is the better option without insight into a would-be investor’s personal financial situation.
I would like to know: among these three options, namely shares, unit trusts and ETFs, which one is the better option and how do they function?
Chris van Wyk of PSG Hermanus Portfolio Management & Stockbroking responds:
With no background information available about your situation, needs, funds available, risk appetite and investment objective, a rather clinical response will have to suffice.
Shares:
Ordinary shares represent an avenue to buy and own a part of a company directly as an individual.
They are usually listed on a stock exchange such as the Johannesburg Stock Exchange.
Shareholders are entitled to part of the profit of the company, dividends (usually taxable) are paid periodically and such shares are bought and sold through a registered stockbroker.
ETFs
Exchange-traded funds (ETFs) are investment funds bought and sold on stock exchanges much like shares.
An ETF holds assets such as stocks or shares, commodities (like gold or platinum) or bonds (for example issued by companies, the government or Eskom).
ETFs may be attractive because of their low costs, tax efficiency and because their features are much like those of shares.
Unit trusts
Unit trusts are investment funds set up under a trust deed. The trust company appoints an investment manager, which usually manages assets such as property, shares, bonds and cash equivalents in a pool of investments on behalf of unit holders.
Units are bought and sold through the management company and not by stockbrokers.
Investors who want to find the most suitable of these investment options will need the help of an investment professional as there are more than 1 000 unit trusts on offer, more than 500 companies are listed on the JSE and a host of ETFs are available.
All of these have different risk profiles, investment return potential, tax implications, costs of trading and suitability characteristics.
There is no way of saying which is the better option without insight into a would-be investor’s personal financial situation.
- Fin24
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