What are the risks of investing in unit trusts?

Is unit trust a safe investment?

So, when you invest in a unit trust, you can be sure that your money is safe from theft. The Securities Commission reads and approved each unit trust’s prospectus and annual report, periodically audits unit trusts’ financial records, and generally makes sure everything with the fund is in order.

Is unit trust a low risk investment?

Unit trust funds are widely known for having lower risks due to its widely diversified portfolio holdings.

What are the risk factors of unit trust?


  • Currency Risk. Investment into Unit Trust funds that have exposure to foreign investments may be exposed to currency risk. …
  • Inflation Risk. …
  • Interest Risk. …
  • Liquidity Risk. …
  • Market Risk. …
  • Management Risk.

What are the disadvantages of unit trust?

Disadvantages of Unit Trusts

  • Unit Trusts are not allowed to borrow, therefore reducing potential returns.
  • Bid/Ask prices exist – with the price that you can buy a unit for usually higher than the price you can sell it for – making investment less liquid.
  • Not good for people who want to invest for a short period.
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How long should you invest in unit trust?

In contrast, unit trusts are more suitable for investors looking for reasonable long-term returns. Being prepared to hold on to their unit trust investment for at least five years or more enables their funds to reap reasonable returns as the companies invested by the funds have sufficient time to grow their profits.

Does unit trust pay dividends?

Returns from unit trusts

Some funds pay dividends. The price of each unit is based on the fund’s net asset value (NAV) divided by the number of units outstanding. … The NAV is usually computed daily to reflect changes in the prices of the investments held by the fund.

Who is the legal owner of a unit trust?

The trustee is the legal owner of the assets in the trust, holding the assets for the benefit of the underlying unit holders. The trustee has an important policing role, ensuring that the manager complies with the terms of the legal document that created the trust, the ‘trust deed’.

Are unit trusts profitable?

You may not grow your wealth with dividends, but unit trusts help you grow your wealth through capital gains. … If their value increases to more than what you paid for them, you will get capital gains. If you choose to redeem your units at this higher value, you will enjoy a profit from your investment.

Why do people invest in unit trust?

The main advantages of investment into a Unit Trust fund is the reduction in investment risk by way of diversification as well as having approved professional investment managers manage the funds. … To avoid this systematic risk, investment managers may diversify into non-correlated asset classes.

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What are the main advantages of unit trust?

Benefits of Investing In Units Trust

  • Diversification & Reduction of Risk. An investor’s risk exposure is reduced by way of diversification. …
  • Affordability. …
  • Access to Professionals. …
  • Flexibility. …
  • Exposure to Different Assets & Markets. …
  • Liquidity.

How can you reduce your risk when you invest in unit trusts?

Diversification helps to reduce risk. To have only one share in your portfolio is riskier than having two. Unit trusts provide sufficient diversification to investors who have as little as R5 000 (and in some cases even less) to invest.

How does the unit trust work?

A unit trust is a basket of a selection of listed securities – shares, bonds, property, cash or other asset classes – chosen by professional fund managers. The manager buys these securities on behalf of the fund, which is then split into equal units which are sold to investors.

Is unit trust income taxable?

The income from unit trusts and OEICs is always taxable regardless of the share class or whether the income is actually taken or reinvested. However, it may be tax free if it falls within one of the allowances (dividend allowance or starting rate for savings/personal savings allowance).

What are the disadvantages of investing in a managed fund like units trusts?

The drawbacks: Portfolio managers can’t actively manage the assets held by a UIT. What’s more, investors typically have to pay a sales charge, one-time organizational cost and annual expenses such as trustee and supervisory fees. A wide variety of asset classes and strategies are available to UIT investors.

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What is the difference between unit trust and shares?

If you invest in a unit trust you buy units whereas if you invest in an OEIC you buy shares. The major difference between unit trusts and OEICs is the way they’re priced. … With unit trusts, the bid price is the per-unit price you’ll receive if you sell your units back to the fund company.