Understanding South African Unit Trusts: A Guide for New Investors

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Investing can be an overwhelming journey, especially for those just starting. In South Africa, unit trusts and exchange-traded funds (ETFs) are popular options for many investors seeking growth and diversification. This article will break down what unit trusts are, how they compare to ETFs, and some options for investing wisely.

What Are Unit Trusts?

Unit trusts are collective investment schemes. This means that many investors pool their money together. A professional manager invests this money across various assets, such as stocks and bonds. This strategy helps spread the risk. If one investment performs poorly, others may do well, balancing potential losses.

Why Consider Unit Trusts?

  1. Diversification: Since the money is spread across many assets, unit trusts can help lower risk. This is particularly important in a volatile market.

  2. Professional Management: Experienced fund managers select and manage the investments, making it easier for individuals without investment expertise.

  3. Potential for Long-Term Growth: Some unit trusts have shown strong past performance. For example, the Ranmore value fund boasts an annualised return of around 8.26% over the past ten years.

Exploring Fees and Returns

When considering a unit trust, it’s important to look at the fees involved. The Total Expense Ratio (TER) includes management, advisory, and administration fees. Lower fees can lead to better net returns for investors. For instance, while the Ranmore fund has a TER of 2.52%, which leads to a net return of 5.74%, there are other funds with potentially better returns and lower fees.

For example:
– The Ninety One Global Franchise Fund offers a net return of 9.87% with a TER of 2.27%.
– The Dodge & Cox Worldwide Global Fund provides a net return of 9.4% with a TER of 1.9%.

In contrast, some funds might have lower annualised returns but still provide good options:
– The 36ONE BCI Flexible Opportunity Fund has a net return of 7.64% with a TER of 1.82%.
– The DENKER SCI Global Financial Feeder Fund shows a net return of 8.98% with a TER of 2.37%.

Choosing the Right Funds

If you are looking for unit trusts with better returns and lower expenditure, it’s crucial to do your research. Look for funds that match your risk tolerance and investment goals. Don’t hesitate to reach out to financial advisors, but make sure you understand the fees tied to their advice.

Allocating Your Investment

When investing, consider spreading your capital across multiple unit trusts. This approach can help diversify risk even further. You might choose a mix that balances local exposure with international options to capture growth in different markets.

Final Thoughts

Keep in mind that past performance does not guarantee future results. It’s essential to stay informed and revisit your investment choices regularly. As you embark on your investment journey, remember that patience and persistence are key.

Investing is not an overnight game; it’s a long-term strategy that pays off over time. As you learn and adapt, you can make informed decisions that align with your financial goals. Whether you choose a unit trust or an ETF, the right decision is one that fits your individual circumstances and targets your financial future effectively.