Why Choose a Unit Trust?

17 Apr 2017 | Back to Blog

All investing involves risk. The same is true for just about everything in life that moves you forward. Simply put, investing is a necessary risk, because keeping your money in savings over the long term is a guaranteed loss, as inflation makes your money less valuable each year. What’s important is to manage risks with investing, and one of the most effective ways to do this is to diversify.

The challenge for many investors is that it usually takes quite a bit of money to build a sufficiently diversified portfolio of stocks and bonds, an issue solved by investing in a unit trust. You could think about it like a buffet versus an ordinary restaurant. In the restaurant, you can afford to order one dish on the menu, which could be good or bad, or you could pay a flat fee for the buffet and have a bit of everything. Some dishes will be better than others but you have better odds of a good dining experience at the buffet, especially given that the menu will be put together by an expert.

Diversification is a key benefit of any unit trust, which is a type of collective investment or pooled fund. When a group of investors combine their cash to invest in units within the trust, those investments, which are the fund’s assets, are managed by a professional whose objective is grow the overall value of the trust. The fund manager may choose to include stocks, bonds, or other assets like real estate, whether locally, across the region or across the world. What the manager invests in depends on the strategy for that fund since different funds will have higher or lower returns and with them higher or lower risks.

The benefits of a unit trust fund go beyond diversification however, here’s 6 more things you should know unit trusts:

  1. You don’t need huge sums of money to invest – unit trusts are often how investors get their feet wet. Part of the reason for that is they have relatively low minimums to start, after which you can add to it via monthly debit orders or regular lump sums.
  2. They come in a variety of categories and types – from stocks and bonds in different industries and regions, to other assets. There’s usually a range of options, and, because of point number 1, you can invest in more than one. Say for example you have a short-term goal like buying a car, a medium-term goal like a deposit on a house, and a long-term goal like retirement, you can take on 3 different trusts, which all come with different return projections and risk profiles.
  3. They’re usually affordable – the costs of unit trust, as a percentage of assets are relatively low. Of course, this varies from firm to firm, so it’s important to speak with your asset manager or advisor before investing.
  4. Professional management – this is arguably the greatest benefit of a unit trust, ordinary investors can access a whole team of researchers and analysts, in addition to the main fund manager, who tracks assets daily. This means hours of time and energy saved and the ability to take on all sorts of assets, even if you’re not an expert. Elections, oil prices, extreme weather, fashion trends are just a few of the things that impact the cost of assets so it takes a diligent team working behind the scenes to run a solid trust.
  5. Easy to track – you can check on how your unit trust is doing online or in weekly reports in the newspapers, as well as regularly published fact sheets from your advisor. Usually in tabular form, they should be easy to understand even if you’re new to investing.
  6. Liquidity – you can buy and sell your units without difficulty, which means in the event of an emergency you can get cash without much delay. Some firms even allow investors to borrow against the assets they have invested, because life is unpredictable and finances should be flexible.