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Definition

A collective investment scheme (in terms of the Collective Investment Schemes Act 45 of 2002) consisting of a management company like STANLIB and a trustee company (usually a bank) that invests unit-holders' funds in the share and capital markets for a fee. The public is invited to buy units in order to obtain capital growth and dividend income. Unit trusts are basically a method for lay-people to pass on the management of their money to a management company employing expert analysts. Investors can invest much smaller sums of money in a unit trust than is usually practical when buying shares directly through a broker. This enables them to save and invest on a monthly debit-order, but lump-sum investments are also accepted. Different unit trusts have different biases in their portfolios, which can greatly affect their overall performance. Historically, unit trusts world-wide have under-performed the indexes of the sectors in which they compete - and this has given rise to "index funds" which simply buy exactly the same mix of shares as are in a particular index. This fact was well illustrated by the fact that by 2021 95% of domestic equity funds under-performed the S&P SA 50 index over the previous five years by an average of 3,3% per annum. Today, most investors prefer to buy ETF's which have far lower costs than unit trusts.

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