It’s time to invest!
When it comes to securing your financial future and growing your long-term wealth through investing, it’s a no gamble—you need to put your money to work in an investment option that guarantees the best investment returns.
Investing in your future is the best decision you will ever make at any stage of your life. Whether you are looking for tax free investments or saving for long-term goals, your funds should be invested not only where returns are gained but trust is earned too.
So, what is the best way to invest money in South Africa? Well, facts and figures don’t lie. Unit trusts investment is the best way to secure your future, hence the way to go.
I repeat facts and figures don’t lie. Guess what, any top-performing units trust in South Africa can double your money in a year, as reported on News24 by a Fin24 reporter. Sounds good to be true? Wait until we tell you more about unit trust investment.
You’re a lucky one today. You don’t have to navigate through the murky waters of capital markets to get your way to amazing returns. All you want to know about unit trust prices, unit trust funds or even the best performing unit trusts in South Africa 2020 is right here.
We have answered some of the questions you might have in the following sub-topics which also act as a basic introduction to the world of unit trust investments for the South African investor.
A unit trust is a type of mutual fund that holds assets from different investors, and through professional fund managers invests the pooled funds in a portfolio of securities such as bonds, securities and other authorized securities or money market instruments to earn income in the form of capital gains, dividends and/or interest income that go directly to investors instead of reinvesting the returns.
Generally, those who invest in a units trust are issued with units which represent a percentage of the underlying portfolio of securities in exchange for the funds invested.
Unit trust investment in South Africa are governed by the Collective Investment Schemes Control Act, No. 45 of 2002 (CISCA) and regulated by the Financial Sector Conduct Authority (FSCA).
According to the Regulations, a Units Trust scheme should have an independent trustee to ensure the investors’ interests are protected at all times and that the funds or assets are in safe custody in a collective investment scheme or unit trust at a financial institution approved by the Authority.
The assets from investors are administered and managed by a registered CIS Manager who must be duly registered and approved by the FSCA and be fully compliant with the CISCA.
Unit trusts are also expected to adhere to various guidelines and codes of conduct outlined by the Association for Savings and Investments South Africa (ASISA).
Notably, this does not mean that your assets are immune to investment losses. Usually, investment losses mostly depend on where and how the funds of the unit trust are invested. Theoretically, any unit trust can suffer an investment loss because unit trust investments are not guaranteed against losses.
Generally, unit trust investments are flexible and tailored to meet your investment goals regardless of whether they are short-term or long-term. While unit Trusts carry the potential for higher investment returns, the capital market often experiences significant fluctuations that could last for months or even years. As such, the charges and fees on unit trusts also vary from time to time.
When it comes to the perceived costs of managing and administering a unit trust structure, fees are a potential pitfall. The appointment of an independent professional trustee, the custodians and the general administration of the trust is costly but the costs involved will be a topic for another day.
Today we choose to focus on the charges and fees to the investor. It’s worthwhile to note that while the fees on your unit trust investment may seem negligible—1 or two percent of the assets, they can eventually reduce the returns earned over time.
For instance, if you are being charged 8% and the rate of inflation is at five percent, then in actual sense (after inflation), you will only earn 3%. If you are required to pay 1% as fees, then the fee accounts for 20% of your actual returns.
The fees charged on unit trust funds are never regulated hence funds have no limit as to how much fees they can charge, just that all fees must be disclosed as either initial or ongoing fees.
It’s exciting to know that most unit trust schemes in South Africa no longer charge initial fees. In case they do, it’s usually a one-off fee deducted before your money is committed to buying units in the fund and generally cover administration costs.
All trust funds charge ongoing fees—fees for managing the trust fund and are normally deducted on regular basis as long as you’ve invested in the fund.
These fees are used to:
Pay for administration costs of the fund; and Pay the asset manager who manages, finds and selects viable investments for the fund.
Unit trust in South Africa attract fees that range from 0.1% annually of your investment value for the cheapest and passively managed fund to 2% for the most expensive and actively managed schemes.
While the management fees are indicated as annual percentage charge, they can also be levied on a daily or monthly basis on the real value of your investment.
These fees can also be fixed or based on unit trusts performance. Fees charged as per the performance are further classified into base fees (must be applied) and performance fees (only applicable when returns surpass a specific threshold). Ideally, a performance fee means you only pay when your asset manager registers good unit trusts performance which should translate into good returns as the manager also earns a good fee.
Learn more about calculating performance fees here.
Every unit trust fund incurs investment charges. These charges are used to cater for the costs of investing in securities like brokerage and the transfer tax on the securities paid by managers. Investment fees must be disclosed to the investor. Keep in mind that funds incur transaction costs in the process of buying and selling securities.
When you involve a financial professional to advice on a more feasible unit trust in South Africa or the best investment options in South Africa, your professional adviser’s fees is likely to be deducted from your investment. Sometimes a financial adviser charges the investor directly for their services hence the fees is not deducted from the investments.
Financial advisers can also charge an initial fee which can be deducted from your funds before they are invested.
Some financial advisers will charge you ongoing fees of between 0.5% and 1%. Some of your units can then be sold to cater for the fees.
When you choose to invest via an investment platform, you may incur an ongoing administration fee paid to the platform provider or associated investment services provider.
Some of the best investments companies in South Africa charge different categories of fees based on your investments. The fees of a certain category when investing via a platform, for instance, can be way lower compared to when you’re investing directly since it’s easier for financial management institutions to handle bulk investments than with individual investors.
The answer is yes!
Unit trusts are great investments when you place your funds in a reliable and reputable company. But hey, forget the fallacy that a unit trust investment will make you a millionaire overnight. You need to exercise patience before you can start reaping the benefits—as a matter of fact, several years.
Of course, investors are trying to navigate their way through the worst time when everything seems to rocket, and in a bad way—interest rates, inflation, oil prices, geopolitical tension, war to name but a few and one of the resounding questions on the minds of most investors is, “where do we go from here”?
But, there has been a lot of positive news from South Africa in recent months. While global equities across the globe plummeted by 13% in Rands (5% in USD) in the first quarter of 2022, South African equities increased by 4% in Rands, a staggering 17%-rand differential performance within three months, this is according to Fin24’s Debra Slabber.
A closer look at the different asset class returns of the first quarter of 2022, the future is bright for investors looking to unit trusts as one of their best investment options in South Africa.
Considering the surge in the number of unit trusts investment in the country, there’s no doubt that a unit trust creates value for investors and it’s now one of the best investment options in South Africa.
Unit trusts are attractive and a viable investment vehicle that can enable you to earn better investment returns in future. No doubt, when well managed and diversified, a unit trust investment can pay higher returns than bank deposits.
Unit trusts are also highly flexible investments that can deliver financial convenience since they do not have any restrictions when it comes to contributions and withdrawals.
So, why invest in unit trust in South Africa? Despite the local stock market’s performance not being impressive, not all shares resulted in poor performance and neither did all investors register poor returns.
Why is it this way? The secret is in the diversification of unit trusts investment and exposure offshore.
Apparently, there are more than one thousand unit trusts schemes available in South Africa. And about a quarter of all unit trust assets are invested in the 20 largest funds as reported by Morningstar. Additionally, only a third of assets are invested with just three out of the 44 financial management institutions in South Africa.
According to recent statistics, the highest return earned from an active unit trust in South Africa over the last decade is 21.9% per annum created by the R26bn Old Mutual Global Equity fund. This portfolio has generated positive double-digit returns in 9 out of ten years. Want to see how much your money would grow be worth in 10 years see our investement calculator .
|
Fund |
10-year annualised return |
|
GinsGlobal US Equity Index fund |
22.1% |
|
Old Mutual Global Equity fund R |
21.9% |
|
Signature Capital Equity fund |
21.5% |
|
SFL Stanlib High Alpha Global Equity fund A |
20.7% |
|
Stout Stanlib Global Equity fund A |
19.5% |
|
Stanlib Global Equity feeder fund R |
19.3% |
|
SFL Stanlib Multi-Manager Global Equity fund A |
19.2% |
|
Ninety One Global Franchise feeder fund A |
18.9% |
|
AF Investments Global Equity feeder fund |
18.8% |
|
GinsGlobal Global Equity Index fund |
18.7% |
|
Allan Gray – Orbis Global Equity feeder fund |
18.6% |
|
Nedgroup Investments Global Equity feeder fund A |
18.4% |
|
SIS International Growth FoF |
18.3% |
|
Stanlib Multi-Manager Global Equity feeder fund B1 |
18.2% |
|
Stout Stanlib Offshore America fund |
18.0% |
Source: Morningstar
If you are a newbie in the world of investments, it’s worth noting that a tax-free unit trust would be the best deal to get you started on your savings or investment journey. Tax-free investments actually mean paying 0% tax on dividends, interest and capital gains.
Tax-free unit trusts investment is one of the best investment options in South Africa. Legislated in 2015 by the National Treasury, the law is designed to encourage more South Africans into saving.
Similar to the standard unit trust, tax-free unit trusts enables investors to invest their assets with some of the best investments companies in South Africa and beyond having the potential to generate higher returns than your ordinary bank account overtime. As the name insinuates, you don’t pay any tax on dividends, interest or capital gains, meaning your unit trust investment will have the potential to grow in leaps.
Tax-free vs Standard Unit Trusts
Both tax-free and standard unit trusts are fast becoming a craze all across South Africa as an increasing number of investors take advantage of this investment vehicle to access blue chip bonds and shares that are not affordably and directly available to investors with smaller investment budgets.
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Tax-free Unit Trusts
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Standard Unit Trusts
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What else do you need to know about Standard Unit Trusts?
Both local and foreign interest earned on a unit trust in South Africa is taxed at your marginal rate while local and foreign dividends attract an effective tax rate of 20%. As at now, interest earned locally of up to R23 800 is exempted from tax for investors of below 65 years, or a maximum of R 34 500 for investors that are 65 years and above.
A capital gain or loss is incurred on your unit trust investments only when you dispose the units. For example, when you withdraw or switch between unit trusts). In this case, 40% of the capital gain will be taxed at your marginal tax rate while the first R40 000 per tax year will be exempted.
No capital gains tax is charged when your investment manager transacts (buys and sells) underlying assets in a given portfolio.
Any investment in a rand-dominated offshore unit trust attracts tax on all gains on your initial rand investment, irrespective of whether the gains are as a result of currency movement or capital growth.
Foreign interest and dividends on offshore unit trusts are taxed. Foreign dividends will be added to your taxable income and taxed at an effective rate of 20%.The complete value of foreign interest will be added to your taxable income and taxed at your marginal rate.
Dividend income earned on unit trusts investment by a South African resident is subject to a withholding tax which is currently charged at 15% (only on local dividends). Note that this is not applicable if you invest in a units trust fund via your tax-free Savings account.
Even though stock or capital markets are complex with lots of uncertainty, you don’t need to wait, you can start investing today and stay invested.
It’s a fact that stock markets are inherently unpredictable and driven by factors that no human or machine can control or accurately predict, but the basic principle of investment remains constant.
There are several risks associated with investments in a unit trust in South Africa.
Volatility is one of the short-term risks that are common in unit trusts market. However, you can still reach your financial objectives by cushioning this low risk through good savings habits, patience and of course diversifying your portfolio.
Market Risk –Fluctuations in the market due to uncertainties in the political, economic and social environment eventually affects the unit trust.
So, what kind of an investor are you on the risk scale? Are you the aggressive or conservative type? Well, there’s nothing wrong with being a conservative investor. In fact, having a conservative personality simply means that you’re reluctant to make decisions that will cause you to lose money you choose to put away. And that you expect your longer-term returns to deliver a strong 1% or 2% p.a above the inflation rate.
Achieving financial independence and amassing generational wealth is a lifetime dream and hence a priority for many South Africans, but picking a unit trust investment that suits your portfolio or needs can be a hard nut to crack.
And since this quest comes down to an individual’s choice, it can be difficult choosing the most viable unit trust in South Africa considering that even the best investment options in South Africa do not guarantee overnight wealth.
Yet, choosing the best unit trust in South Africa doesn’t have to be such a daunting task. When it comes to choosing a unit trust fund that suits your unique needs, as an investor, you must be clear about your risk tolerance and investment/financial goals—both short-term and long-term.
Are you looking to achieve regular income, capital growth or capital preservation? Once you have established your goals, then you need to determine your investment timeframe.
Understanding this is actually half the battle. Some due diligence and research will go a long way in increasing your chances of choosing a winning unit trust investment that meets your goals.
So, how should you go about choosing the best unit trust in South Africa to fully meet your investment needs?
Below are 5 simple steps to guide you through the selection process, and guess what, making the decision might be a lot simpler than you ever thought.
Before you decide to invest in a units trust, you need to completely flesh out your investment objectives and clearly outline the reason(s) for your decision to invest.
Why?
This is because this decision directly correlates with your risk tolerance, that is, the level of risk you are willing to accept for your unit trust investment? Do you have the ability to stomach huge significant swings that could hit your portfolio? Are you a risk averse who prefers to play safe and use a more conservative approach?
It’s prudent that you map out your investment goals and the risk level first, for this will help you to determine the best unit trust in South Africa.
If you are that investor who boasts a higher appetite for risks, then you will choose the more aggressive unit trust investment fund with a diversified portfolio focused on generating long-term capital appreciation. Typically, this involves fast-growing investment options that expand quickly, and carry the potential to generate huge returns.
On the other hand, income investments are more focused on creating regular income streams via high-interest bonds, fixed income securities or standard units trust.
Thankfully, today’s investors have a wide range of options and are not restricted to just the income or growth investments. They can also choose to invest in a balanced fund which consists of a mixture of equities and fixed income unit trusts.
As a forward-looking investor, take time to review a portfolio’s past results. For example, if you are interested in investing in unit trusts in 2022, you may first want to review the best performing unit trusts in South Africa 2020 and 2021 and how well the funds performed given the various market conditions or cycles. Regardless of the market conditions that worked against the units trust, ask yourself, did the fund outperform the set benchmark? What are the current unit trust prices?
Even while armed with this information, keep in mind that past performance doesn’t guarantee future results. Hence, any serious investor should be able to reap up more keenly on the unit trusts’ prospectus in order to have a better understanding of its strategy, fund holdings and sector allocations.
Most importantly, your preferred fund should demonstrate a sound investment process that is clearly defined and easy to understand.
Pay close attention to the various types of charges as highlighted above depending on the investment of your choice. Besides the above fees, you may want to look at other common fees incurred during transactions as shown below:
Front-end load/Initial sales charge
These costs relate to marketing, distribution and monitoring of units trusts investments by an experienced trust consultant for the period the unit trust will be held.
Exit Fees
As the name insinuates, this is the fees incurred when an investor exits or disposes their unit trust fund.
Switching Fees
This is the fees charged to an investor who decides to switch their unit trust from one given category to another.
Management Fees
As the name denotes, management fees are those charges that cover the cost of portfolio management, audit and administrative fees and the trustee and custody expenditures.
By now you should know that it’s important to measure the absolute or relative performance of a unit trust fund before making that big leap. This step is a reminder that it’s also wise that you evaluate the volatility of actual or expected returns.
According to the Malaysian-context shared by Lipper, a financial analytics firm, investors need to employ both the fund’s volatility factor (FVF) and the Fund Volatility Classification (FVC) in their units trust investment selection.
Below is their simple illustration.
In the above illustration, the FVF gives the standard deviation measure of the returns of a fund, and is usually calculated against the fund’s annualized returns over a period of three years. Any unit trust portfolio with a higher FVF points to returns that are fluctuating significantly against its annualized returns. On the contrary, an investment portfolio with a lower FVF is an indication of less volatile returns.
The above example gives a FVF value of 10.2, meaning the fund could rise and fall at about 10.2% relative to the annualized returns.
The fund also classifies it as “High” suggesting that the fund operates in a higher risk-band and could be adopting the more aggressive growth strategies to realize the returns.
For a moment, forget about the unit trust prices and best performing unit trusts in South Africa 2020. There’s a reason why more and more South Africans are investing in units trusts.
Currently, the most common problem among South African investors is choosing from among the many unit trusts available on the market. This makes the process of selecting a viable unit trust even more complicated.
The maximum long-term returns, professionally-managed unit trust funds and financial independence achieved from equities are a lure, but SA investors need to take time to identify the most rewarding unit trust in South Africa with the potential to generate impressive returns within a given period of time.
Furthermore, an investor must have a financial plan, the concepts of diversification, asset allocation and the risk-returns relationship.
Investing in units trust can be a risky venture considering the losses that could be incurred. Once you decide to make the plunge into this space, be sure to choose reputable unit trust funds that make well-calculated investment moves to avoid losses.
The right unit trust fund will ensure your portfolio has proper asset allocation, is exposed to relevant risk-return balance and has reliable fund managers that invest right to deliver the financial future investors aspire for.
Because of the high number of permutations regarding the different asset categories, markets, regions as well as company profiles, the unit trusts available in the market vary so significantly.
When it comes to choosing the right units trust investment, the thought of registering losses keeps investors on their toes forcing them to think twice before they commit.
If you are not sure about a certain unit trust, it’s better to avoid it. Below are three top-performing portfolios and best investments companies in South Africa you can consider working with when you want to invest in
1. GinsGlobal US Equity Index fund
This is a fund that rides on the US stock market. As such, it delivers results similar to those of the MSCI US Index. Today, this portfolio is the most impressive unit trust in South Africa, having delivered a 10-year annualised return of 22.1% in rand terms. The fund adopts the full-replication indexing approach of investment and hence it’s ideal for both individuals and businesses looking for exposure in the USA equity markets.
2. Old Mutual Global Equity Fund
With minimum investment duration of five years, this long-term fund pools resources together before buying equity from emerging and developed economies globally. This portfolio gives opportunity to investors interested in diversifying their income streams. In the last decade, the fund has registered an annualized return of 21.9%.
3. Signature Capital Equity Fund
If you are looking for a fund to generate surplus profits, this is it. Signature Capital Equity Fund was one of the best performing unit trusts in South Africa 2020 and continues to deliver double digit annualized returns, which is quite impressive. Thanks to its team of qualified experts with knowledge of local regulations and market practices that guides its financial and investment decisions, the company makes well-deliberated investment and financial moves that generate excellent returns on investments. The fund has registered an annualized return of 21.5%.
Before we delve into answering this question, let’s first understand what an actively managed investments fund is, and on the flip side, passively managed fund.
An actively managed unit trust is a fund in which a team of management experts or a manager decides on how the fund’s resources are to be invested. In contrast, a passively managed fund follows a market index and there’s no team of experts or a manager making investment decisions.
Note:
In conclusion, it’s not obvious that you will have an active or a managed fund given your type of fund. Sometimes a category may have one or the other and so it’s important that you take time to read through the prospectus of the fund you are considering so that you get better understanding of the details.
So, are unit trust actively managed? Generally, unit trusts investment are fixed and hence not actively managed. And since they are categorized as one of the long-term financial strategies, investors should also consider other best investment options in South Africa with successive portfolios to invest in.
Considering the many options of investments South Africa offers including a wide range of unit trusts that suit every need, when it comes to selecting a viable units trust, there’s a trade-off between stability and lower risks and higher potential returns.
Of course, unit trusts are worth investing and come with great benefits given that they are safe havens for investors looking for financial independence and to create wealth.
Liquidity: Unit trust funds are liquid given that unit holders are allowed to sell their units at any time.
Transparency: Unit trust prices are published daily while audited financial statements are published every half-yearly. Investors can also monitor their unit trusts performance through monthly updates received from their funds.
Security: Unit trusts are statutorily entrusted to the Financial Sector Conduct Authority (FSCA) and controlled by the Collective Investment Schemes Control Act, No. 45 of 2002 (CISCA) whose main role is to protect the investor. These regulations also govern the activities of Unit Trust schemes.
Flexibility: There’s no fixed investment period and investors can invest as long as they like. They can choose from the monthly accumulator or lump sum investment plans.
Convenience: Investors can switch their portfolios between the available Unit Trust funds. Deposits can also be made more easily.
Expertise: You will never have to worry about the stocks to select or the bonds to buy. There is a professional fund manager tasked to take care of this for you.
Highly Volatile
Unit trusts investments are effective, reliable and convenient channels through which long-term investors can create and preserve wealth. However, as global bonds bottom out and stocks slump, uncertainty and market volatility continues to be the order of the day, and South Africa or unit trust funds are no exception.
Unit Trust Price Fluctuations
The value of unit trust investments is susceptible to fluctuation depending on the financial market in which the funds are invested. Hence, it’s important for investors to keep these pointers so as to help them remain calm, focused and disciplined. If you are a risk averse investor, then unit trusts investment isn’t for you.
Restrictions
Unit trust funds are not allowed to borrow and hence potential returns are reduced. The investment is also suitable for investors interested in long-term investments.
Losses
Sometimes the price when buying units is usually higher than the price you sell it for, making the investment quite risky.
Finally
Many South Africans are interested in knowing more about unit trusts so they can invest. Apparently, there are more searches around:
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We hope that this guide about unit trusts in South Africa will help you in making the best investment decision.
Keep in mind that it’s never too late to find the right investment plan to help you achieve your financial goals. Signature Capital is your trusted diversified units trust investment company to help you make the best investment options in South Africa.
Make wise decisions and stay invested through a trust fund that employs a balance of exposure methodology that aims at safeguarding investors against different risks.
Consider investment companies with low-equity multi asset funds as their core, and which have the potential to withstand inflation, grow and preserve wealth for its investors.
DISCLAIMER: This article provides basic knowledge about unit trusts and is intended for general informational purposes only and does not address any individual circumstances. It is not a substitute for professional advice or help and should not be relied upon to make any decisions. Any action you take upon the information presented in this article is strictly at your own responsibility.
