Even if you think the Johannesburg Stock Exchange (JSE) is only for savvy investors, you can stake a low-risk claim in the JSE by investing in unit trusts.
What is a unit trust?
Unit trusts allow people to pool their money to invest in low-risk, expensive shares on the Johannesburg Stock Exchange. Known as blue chip shares, these shares are usually almost impossible for individuals to get their hands on because they are in demand and are very expensive as a result. However, if you take out a unit trust in these blue chip shares, the cost is shared among a large number of investors who pool the money that they have available.
How does a unit trust work?
The money you choose to invest is entrusted to a unit trust management company. The fund manager will need a minimum amount (about R100 to R500) each month. The management company will buy JSE shares on the investors’ behalf, meaning that you don’t need to have any knowledge of the stock exchange if you are considering investing in unit trusts. The company combines the shares in a portfolio and divides it into a number of units; these units will be distributed to each investor according to how much money each investor contributed.
What are the benefits of having a unit trust?
- One of the most significant advantages of unit trusts is their accessibility as people have the opportunity to participate on the JSE regardless of qualifications, age or occupation.
- Because you is entrusting their money to a manager, you doesn’t need any knowledge about the stock exchange and economic market. Rather, expert analysts will invest on your behalf and ensure that you get maximum returns for your investment.
- Unit trusts are one of the best saving options to beat the inflation rate because the compound growth of the investments remain relatively stable, regardless of how the inflation rate is playing up.
- When you take out a unit trust you won’t have to compete with SARS to get your earnings. The dividends income on unit trusts is tax free, and capital growth is also usually free from tax.
- You have direct access to your money invested in a unit trust and the management company can sell you shares immediately upon written instruction. This means that unit trusts can act as an emergency source of funds if necessary; but you are also able to keep your unit trust for as long as you want as you are not committed to a certain investment period.
- Unit trusts are offered on flexible terms, allowing you to change between investing regular monthly payments and investing a lump sum. You can also decrease or increase your payments according to your specific needs.
Hints and tips for investing in unit trusts
- Remember that unit trusts are more effective as long term investments. Most people would suggest that you keep it for 3 to 5 years so that you can let the investment mature. The money will grow slowly, but you will get more out of it than if you had the money sitting in a savings account earning minimal interest.
- Growth or value funds usually show decent return over time.
- There are a number of documents you will need to bring with you when you approach a management institution. These include: a certified proof of address and proof of identity, bank account details and other such information.
- Instead of approaching a financial advisor, you can cut out the middle man by registering online as most banks have direct investment unit trust options.