Unit trusts are referred to as open-ended investments; they are a collective of investments that are pooled together towards a specific objective. A unit trust allows the financier to entrust their money in alignment with how much risk they’re willing to take. The idea behind unit trusts is that by pooling their money and investing in a range of shares or bonds, shareholders spread the risk. A unit trust fund is typically divided into segments, each of which represents a share of the overall portfolio. Each day the portfolio is valued; this determines the worth of each part. When the portfolio’s value increases, the price of the segments is boosted and conversely, when the portfolio rate goes down, the cost of the individual units fall.
How to buy unit trusts
There are a few ways in which a potential depositor can go about investing in unit trusts:
- directly through a financial service management company
- indirectly through an independent financial advisor or via a bank broker
- through a unit trust investment platform
A unit trust investment platform allows the customer to invest by means of a single administrative policy into a variety of funds offered by different companies. Investors have the option of paying monthly instalments or a lump sum deposit.
The advantages of unit trusts
The beauty of unit trusts is that the patron isn’t required to have expert knowledge regarding buying and selling, or even in-depth knowledge of shares. Teams of professional, economic and market analysts will invest on the depositor’s behalf, ensuring maximum capital and income growth. The benefits of unit trust investment are significant and numerous, and should be examined thoroughly before undertaking any course of action:
- Professional management – Typically, when you invest in unit trusts, you have experts handling the procedure for you. This is convenient for those who aren’t able to constantly follow the stock market or lack experience in financial growth platforms. These expert services include obtaining quotations on shares that are being bought and sold and the safekeeping of cash, as well as the professional management of accounting and bookkeeping activities.
- Diversification – This involves means spreading your investments among several securities and is an important method of reducing risk. By diversifying, you can decrease the danger of damaging losses, which can occur through having all of your money in one investment.
- Liquidity – A financier can sell their shares wholly or partially, at the following trading day’s unit buying price. Unit trusts have a high liquidity, which means they can be readily converted into cash. However, the amount may be higher or lower than the value at which the investor started the plan. Accordingly, unit trusts should be regarded as a long term – rather than a short term – investment.
- Easy access – There are no minimum payment periods and most service providers offer various avenues to access your investment portfolio.
- Increased buying power – Your resources are pooled with other investors, allowing you to make deposits that would normally be impossible as an individual depositor.
- Transparency and security – Unit trusts are strictly regulated, so you can be confident that you aren’t losing or making money unlawfully.
- Flexible options – You can choose from a fixed monthly option or a lump sum investment.
Investonline.co.za has planned risk-profiled and diversified portfolios from the premium branded unit trust funds in South Africa. These are invaluable for assisting our online clients in selecting the better performing funds at an affordable cost. Contact Investonline today to secure your financial future.