What is a unit trust and how does it work in South Africa?

A unit trusts operates much like a mutual fund; it is in fact a form of a mutual fund. Unit trusts, like mutual funds, pool cash from different investors, this cash is used to invest in stocks, bonds, property and other securities. The main appeal of Unit trusts is that they are very safe.

Most people don’t have enough money to invest in different securities, they usually have enough to invest in just a few. This leaves them very vulnerable; they are likely to lose their investments if the market goes against them. A unit trust allows you to contribute a small amount of money while getting the advantage of having a diversified portfolio.

How does it work?

As the name suggests, a unit trust is held under a trust, with the investors being the beneficiaries. A mutual fund is often held under a company, the profits made the trust are distributed to beneficiaries (investors). The trust is managed by a trustee.

The trustee is the one that makes investment decisions on behalf of the trust, they are legally obliged to act in the best interests of the beneficiaries. Unit trusts pay out at least once per year, but usually twice. The pay-out is in the form of dividends, which were generated from the investments made by the trusts.

When investing in a unit trust, you are essentially buying units in a trust, these are shares in mutual funds. These units can be sold at any time, the value of the units may appreciate or depreciate; depending on how the unit trust performs.

How to invest in a unit trust?

Unit trusts are not that popular in most countries, they are popular in South Africa, UK, New Zealand and other small countries like Fiji.

Most unit trusts in South Africa require you to start with a minimum investment of R500 per month. Allan Gray requires you to make a lump sum deposit of R20 000 if you don’t want to make investments of R500 per month.

Unit trusts differ, some unit trusts have better returns when compared with others. This is because some unit trusts are designed to be stable, while others are built to offer higher returns. Unit trusts with higher returns are usually riskier because they invest more money into volatile assets like stocks. A more balanced unit trust has less returns because it invests money into assets like bonds and other more stable assets.

Most companies in South Africa have different options that allow you to choose the level of risk that you want to take when investing in a unit trust. Unit trusts with higher returns usually require you to wait longer (5 years) before seeing the fruits of your investment.

Some unit trusts focus on a certain sector. Your religion might prevent you from investing in companies that make alcohol. There are trusts that don’t have alcoholic companies in their portfolio. You might only want to invest in companies that deal mostly with property (real estate), there are unit trusts for that too.


Investing in a unit trust in South Africa is not difficult, just go to any company that offers unit trusts to get started. Do you have any thoughts or questions? Comment below.

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