UNIT Trusts are a form of collective investment that allow investors with similar investment objectives to pool their funds, which are then invested in a portfolio of securities or other assets by a licensed fund manager. Investors purchase units within a fund, and the prices of these units change from time to time, reflecting the performance of the portfolio of securities or assets purchased by the Fund Manager. Unit Trusts are regulated investment vehicles that fall under the Collective Investment Schemes Act.
Investors can invest in various types of Unit Trust Funds namely Growth Funds, Income Funds or Balanced Funds. Each of these Unit Trust options are specifically designed to achieve a particular investment objective. Growth funds aim to invest in assets that grow appreciably over a defined time period. These are commonly shares of listed companies on a local securities exchanges. Income Funds have an objective to invest in assets that produce a predictable flow of income, usually in the form of interest payments. These are commonly short-term money market, longer-term bond instruments and rental properties. Balanced Funds strike a balance between growth and income, so these types of Funds invest in both listed shares and interest-earning instruments.
In recent years, fewer individuals have invested in Unit Trusts. This is because investment assets are a function of how much savings individuals have at any given time, and savings are dependent on surplus disposable incomes of individuals in the economy.
As the Zimbabwean economy deteriorated, disposable incomes declined. This was accompanied by a decline in the level of savings individuals had available for investment. This meant that fewer and fewer people were left with enough savings to invest in products such as Unit Trusts.
Additionally, the high inflationary environment eroded the value of investments such as Unit Trusts. Potential investors would seek other investment options that they deemed to be more likely to preserve the value of their money. However, investors can enjoy a range of benefits when investing in Unit Trusts compared to other types of investments of securities.
By investing in Unit Trusts, investors have access to specialist investment skills through investment management firms and Fund Managers. Investment management firms are central to the operations of Unit Trust Funds. They set up Unit Trust Funds and define their objectives. Investment management firms offer Unit Trust Funds to the investing public and receive funds for the purchases of units.
They also administer the day-to-day functions of the Unit Trust Fund, including purchases and sales of the targeted assets, updating the unit prices and paying off investors whenever they sell their units. Investment management firms have the skilled personnel required to carry out investments on behalf of their investors. This means investors benefit from the skills and experience Fund Managers have in selecting the right assets in order to deliver the desired objective of a Unit Trust Fund.
Unit Trusts are deemed to be an affordable option for investors. Because Unit Trust Funds are pooled investments, they give investors an opportunity to invest in larger assets such as high priced shares, properties among others, which would typically be unaffordable to small investors.
Unit Trust investors are also able to achieve diversification of their asset holdings by investing in a Unit Trust Fund because of its scale and investment capabilities. Diversification is key to managing investment risk and would be more difficult to achieve for individual investors because some investment assets are beyond their reach.
Investors can enjoy a higher degree of flexibility in accessing the financial markets by investing in Unit Trusts. Investors can invest and redeem their investments at any given time by purchasing or selling their units. Direct investments in specific assets or securities is often not easy for individual investors.
Although Unit Trusts are attractive investments with a range of benefits, they are not risk free. The degree of risk in each Unit Trust Fund depends on the risks of its underlying invesment assets. This risk is minimised through diversification. There is also a common misconception that Unit Trust Funds with cheaper units are better investments. The absolute price of a unit does not reflect the quality of the fund’s underlying investments, therefore a cheaper unit does not necessarily imply that it is a better investment than higher priced units.
Investment managers regularly change the composition of the investment portfolio for a given Unit Trust Fund in order to ensure that they achieve the desired objective.
If you are interested in investing in a Unit Trust Fund, visit the offices or website of an Investment Management firm of your choice, and request information on the Unit Trust products that they have on offer. You will be guided through the account set-up and investment processes.
From there, you can decide on which Unit Trusts you prefer and the amount you would like to invest. Check the unit prices regularly to track the performance of your investment.
This article was written as part of the Securities and Exchange Commission of Zimbabwe’s Investor Education Campaign in partnership with the Investor Protection Fund (IPF). For more information contact: firstname.lastname@example.org.