How unit trust investments work

What are unit trusts?

Investors have never had more choice. From global shares and ETFs to cryptocurrencies and alternative assets, the menu of investment options continues to expand. Yet despite this growing complexity, investing in unit trusts remains one of South Africa's most popular ways to invest. They offer something many investors need: access to diversified portfolios and professional investment management without having to make every investment decision themselves.

A unit trust is an investment that pools money from many different investors into a single fund managed by a professional investment manager. The fund manager then invests that money across a range of assets, such as shares, bonds, property or cash investments, depending on the fund’s objective.

When you invest in a unit trust, you buy “units” in the fund. The value of your investment depends on how many units you own and how the underlying investments perform over time. If the value of the fund grows, the value of your units increases too.

Unit trust investments are widely used by both new and experienced South African (SA) investors because they offer access to professionally managed portfolios without requiring investors to select and manage individual shares or investments themselves.

Unit trusts in South Africa are regulated collective investment schemes, which means they operate within a strict regulatory framework designed to protect investors.

How do unit trusts work?

When investing in unit trusts, your money is combined with that of other investors and invested according to the fund’s strategy. Each investor owns units in the fund, and the price of those units changes daily based on the value of the underlying investments.

For example, if a unit trust invests mainly in shares and those shares increase in value, the price of the units is likely to rise. If the investments decline in value, the unit price may fall.

Professional fund managers make the investment decisions on behalf of investors. Depending on the type of fund, they may invest across:

• Local and global shares
• Bonds
• Cash
• Property
• Or a combination of different asset classes
• Returns from unit trusts generally come from two sources:
• Growth in the value of the underlying investments over time
• Income generated by the investments, such as interest or dividends

Many unit trusts allow investors to start with either a monthly debit order or a lump sum investment, making them accessible even for investors starting with smaller amounts.

What types of unit trusts are available?

There are many different types of unit trusts investors can choose from, depending on their goals, time horizon, and appetite for risk. These include:

• Equity funds

Equity funds invest mainly in shares and are generally suited to investors looking for long-term growth. Because share markets can be volatile over shorter periods, these funds typically work best over longer investment horizons.

• Balanced or multi-asset funds

Often used for long-term goals such as building retirement savings, balanced funds invest across a mix of asset classes such as shares, bonds, property, and cash. They aim to grow investors’ money over the long term while managing risk by diversifying investments across different types of assets.

• Fixed income funds

Fixed income funds mainly invest in bonds and other income-generating investments. They are typically used by investors seeking a source of income and lower levels of volatility than equity funds, while helping to keep savings productive when they are not needed immediately. Managed income funds are one type of fixed income fund.

• Money market funds

Money market funds invest in short-term cash and interest-bearing instruments. They are generally considered lower-risk investments and are commonly used for short-term savings or emergency funds.

• Rand-denominated unit trust funds for offshore investing

Some unit trust funds invest in global markets, giving you access to opportunities beyond the JSE. This can include exposure to global companies, industries and currencies that may not be available locally. When you invest in a rand-denominated global fund, you can invest in rands while still gaining exposure to international markets and offshore assets.

What are the benefits of investing in unit trusts?

Unit trusts are a popular and accessible way to build long-term wealth over time. When searching for the best unit trust in South Africa, consider whether it offers the following benefits as a starting point.

Unit trusts vs ETFs in South Africa

Unit trusts and exchange-traded funds (ETFs) are both pooled investments that give investors exposure to a range of underlying assets. However, there are some important differences between them. (Please see the table below for more details.)

The right option depends on your investment goals, preferences and the type of investment exposure you are looking for. Some investors may even choose to combine both within a broader portfolio.

How to choose unit trusts in South Africa

Choosing the best unit trusts South African investors should invest in depends on several factors, including your financial goals, investment horizon, and tolerance for risk.

Some important questions to consider include:

• What are you investing for?
• How long do you plan to stay invested?
• How comfortable are you with market ups and downs?
• Do you need income, long-term growth, or a balance of both?

For example, an investor saving over several decades may be comfortable taking more investment risk through an equity-focused fund, while someone saving for a shorter-term goal may prefer a more conservative option.

It is also important to review factors such as the fund’s investment objective, long-term unit trust fund performance in South Africa, and the investment philosophy of the fund manager.

Coronation publishes detailed fund fact sheets and fee details on our website to help you better understand your options. Investors who are unsure which option is appropriate for them would benefit from speaking to a qualified financial adviser.

How to invest in unit trusts in South Africa with Coronation

Coronation offers a range of unit trusts in South Africa, designed to meet most investor needs.

Local and offshore investment options

Choose from a wide range of unit trusts across local and global markets, suited to different investment goals. If you’re investing offshore, you can choose to invest in rands or a foreign currency.

Low minimum investment amounts

You can start investing from relatively low minimum amounts, making it easier to begin building wealth without needing a large upfront investment. And because long-term investing benefits from time in the market, starting early – even with smaller amounts – can make a meaningful difference over time.

Minimum investment amounts:

• R500 per month through a debit order
• R5,000 lump sum investment

Simple online investing

Coronation’s digital investment process makes it easy to start investing and manage your investments online.

No initial or administration fees

Coronation does not charge initial or ongoing administration fees on certain investment accounts, helping to keep long-term investing more cost effective.

Get advice on investing in unit trusts

Choosing the right unit trust depends on your investment goals, time horizon and appetite for risk. A qualified financial adviser can help you understand which types of unit trusts may be appropriate for your needs and how they fit into your broader long-term investment strategy. Find out more about the value of financial advice.

Frequently asked questions (FAQ)

• What are unit trusts and how do unit trusts work in South Africa?

A unit trust is a pooled investment where many investors combine their money into a professionally managed fund. Investors buy units in the fund, and the value of those units changes based on the performance of the underlying investments.

• What is the minimum amount to invest in a unit trust?

This depends on the investment manager and investment platform used. With Coronation, investors can start from R500 per month or a R5,000 lump sum investment.

• Can I access my money in a unit trust at any time?

Yes. Most unit trusts are flexible investments, allowing investors to withdraw or switch investments when needed. However, unit trusts are generally best suited to medium- to long-term investing.

• What fees do unit trusts charge?

Each fund has an annual management fee, which covers professional investment management and administration. All fees are fully disclosed on each fund’s fact sheet and on our website.

• What is the difference between a unit trust and a retirement annuity?

A unit trust is a flexible investment that allows investors to access their money when needed. A retirement annuity (RA) is specifically designed for retirement saving and comes with restrictions around withdrawals and investment limits.

Insights Disclaimer