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Unit Trusts explained

Investing

Unit Trusts explained

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It’s better to look ahead and prepare than to look back and regret. – Jackie Joyner-Kersee

A lot of us have long term cost that we will incur in the future. If you are a parent this could be university fees that you may incur when your child starts attending university. For a student, this might be wanting to buy a car someday or go on holiday. So the question arises how can one prepare for a future cost that one might incur? One of the ways to prepare for the future is to invest in a Unit Trust.

What is a Unit Trust?

A Unit Trust (or Trust Fund) brings a whole lot of money together (into what we call a pool) on order to invest in a certain assets (called the underlying asset) such as shares, bonds, or property.

The value of the underlying asset is divided into a number of ‘units’ which you can buy. For example, if a unit trust with 1000 units owned one house valued at R700,000 – each unit would be worth R700 – roughly speaking. So as you invest your money into a Unit trust you would be buying units,  and as you pull your money out, you would be selling units (i.e selling your piece of the total investment). 

Unit Trusts will,  in practice, own a large number of investments. The price of the units will mimic the price of the underlying assets.

The major benefits of investing in a Unit Trust is that they are affordable. Currently, some funds have a large minimum lump sum investments. But if you cannot afford the lump sum amount, there may be an option to invest less monthly.

Now check out ‘How to read a Fund Factsheet

Comments

Older comments
    Vané Zulu says:

    Can you recommend someone to talk to regarding this form of investment or should I contact a financial advisor? I am scared a financial advisor will push his/her products on me.

Tinaye is a self taught forex trader. He holds an honours degree in mathematics and is currently pursuing a Financial Risk Management (FRM) qualification.

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