WHAT IS A COLLECTIVE INVESTMENT SCHEME ALSO KNOWN AS A UNIT TRUST:

Unit trust funds or collective investment schemes give investors access to a large basket of shares, property, fixed interest investments or multi-class portfolios. They are tax efficient, transparent, have a wide range of investment mandates and they are priced daily allowing for easy tradability.

Unit trusts are increasingly used as an underlying investment or building blocks in a wide range of investment products and they have become the investment vehicles of choice for a wide range of retirement products, including retirement annuities, preservation funds, and living annuities. They are also why do used as underlying choices in the insurance industry.

The potential of unit trust schemes is enormous. Collective investment provides a means for ordinary people to invest in the stock exchange and to beat inflation by getting good returns.

 Collective investment schemes work on the principle that spreading your investments over a range of products will protect the investors’ money better then placing it all in one area of the financial market.

ADVANTAGES OF A COLLECTIVE INVESTMENT SCHEME:

• they allow ordinary people to invest in shares that would normally be out of the financial reach if their money had not been pooled with that of other investors in the fund.
• They provide a means to beat inflation as returns are normally higher than the inflation rate.
• Collective investment schemes are a flexible form of investment as you can either invest a lump sum or you can make a regular investment each month.
• Collective investment schemes offers liquidity. In other words, the unit holder may choose to cash in a portion of the collective investment scheme or all of it. This means that your money is always accessible, which is not the case with all long-term investments.
• They can also be transferred to another party, and you can even invest on somebody else’s behalf.
• Fund performances can be monitored on a daily basis.
• One has the benefit of experts in their field of managing money I.E. a Fund Manager, to invest your money on your behalf.
• Investors can invest in markets all over the world and reap the benefits of rand hedging.

DISADVANTAGES OF A COLLECTIVE INVESTMENT SCHEME

•  collective investment Schemes are seen as a medium to long-term investments, so investors should not expect to make a profit in the short term.
• Collective investment schemes run the risk that the markets may collapse and that investors may lose money.
• The investor is dependent on the expert judgement of the portfolio manager and there may be cases where the fund manager does not live up to expectations.
• The costs of a collective investment schemes have been deregulated and therefore costs may differ from one scheme or find manager to another.
• Collective investment schemes have become increasingly specialised in terms of their mandates and sophisticated in respect of the investment instruments used. Investors should therefore take great care that the profile of the collective investment scheme meets their needs and risk profile.

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