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THE question often arises: Out of the thousands of unit trusts available internationally and the hundreds in South Africa, how does one choose a specific fund?
Investing in a unit trust involves handing over your funds to a company that specialises in managing unit trusts. These specialised companies work within strictly-defined legislation and controls, are fully compliant and totally transparent.
In order to choose the "right" fund for you, these are some of the questions you should ask yourself:
l What is the purpose of my investment. In other words, what do I want it to do for me?
l For how long do I want to invest?
l What type of investor am I? - conservative, balanced or aggressive?
l Do I have a preference for any particular sector of the economy, eg, property, resources, financial, industrial or IT?
l Do I need income from the investment?
All unit trust companies have many different types of funds, each with their own specific objective and investment specialists on their investment committees. This means that your money is being managed on an ongoing basis and is part of the huge pool of funds under that specific management team. When choosing a company with whom you'd like to invest, you should examine their track record. How long they've been in business, the total value of funds under their management, how they've performed in comparison with other similar companies or funds and finally, is there someone with whom you can discuss your requirements?
Having selected your chosen fund, you'll now need to have a careful look at the costs involved in buying their units. Is there an ongoing management charge? How do these charges compare with similar funds?
Bear in mind that unit trusts have little in common with ordinary quoted companies. It is important to understand that a unit trust is "open-ended". As new monies are received, more shares are created. The price at which you buy your shares is described as "net asset value" (NAV) and is not affected by supply or demand, as is the case with ordinary shares. NAV simply represents the total value of the fund's assets, including any cash or cash equivalents that it holds, divided by the number of shares in circulation and adjusted for fees.
As the total market value of the assets rises or falls, so will the NAV be similarly affected. The major advantage of holding unit trust shares is that there is always a guaranteed buyer for your shares - the management company is obliged to buy them back from you.
Unit trusts represent the ideal savings vehicle for serious long-term investors.
My advice to investors is to find a financial advisor who is experienced in investments and can appraise you on the myriad of companies and funds, and help you find the fund or funds best suited to your current and future needs.
l Bryan Hirsch is a director of Pioneer Financial Planning. Visit www.pioneer.co.za