CAPITAL MARKETS

Investing in Unit Trusts

Unit Trust Schemes are managed by Unit Trust Management Companies reg-istered by NAMFISA.

What are Unit Trusts?

A unit trust is a scheme where money from different investors is pooled togeth-er and is invested by a professional fund manager in assets such as shares, cash or money market instruments, listed property, listed offshore shares, local government bonds and other securities in various proportions, depending on the investment objective and strategy of the fund.

How does it work?

A unit trust fund is set up under a trust deed (entered into by a management company and trustees). Trustees ensure that the provisions of the trust deed concerning the investment policy of the scheme are adhered to. An investor is effectively the beneficiary under the trust. The beneficiaries subscribe for the units in the same way as shareholders in a company subscribe for shares.

A unit trust fund is made up of portions called units allocated to each investor based on the amount of their investment. Each unit has a price, or net asset value (NAV) based on the underlying assets of the fund. Units are priced (val-ued) daily due to fluctuations in value of the underlying assets in line with daily market movements. The share or unit value increases or decreases, depend-ing on the performance of the underlying investments. The diversification of the portfolio of funds pooled together generally reduces the risk of significant losses.

CAPITAL MARKETS

Contribution by: NAMFISA Capital Markets Department

When you invest in a unit trust, you are allocated units according to the amount of money you invest and the price of the units on the day you buy them. Effectively a unit in a unit trust is a share in the trust fund to which the unit holder is entitled. In an ordinary unit trust a beneficiary is entitled to the income and capital of the trust in proportion to the number of units held after deducting the trading costs and expenses of managing and administering the fund.

The fund manager or the management company buys shares on the Stock Exchange on behalf of the investors. The trust does not give shares to the investor, but combines them in a portfolio. The fund manager then divides the portfolio into many equal “units”. The investor receives a cer-tain number of units for the money he has invested.

Generally, the longer you can stay invested the more likely you are to enjoy a good investment return. Unit trusts are therefore medium to long-term investment avenues. You can make an initial investment with as little as N$500.00 and buy additional units when you have more money or invest a fixed amount on a regular basis via available channels such as debit order, electronic transfers etc.

Advantages

Unit Trusts give investors the following advantages:

• Professional fund management – When you invest in a unit trust, you have access to the expertise and services of investment pro-fessionals who specialise in managing investments and they are registered with NAMFISA. Fund managers are more likely to make sound investment decisions than you are, because they have the expertise and experience.

• Diversification – Pooling your money with that of other investors who have similar investment goals allows you to own a diverse range of investments at a low cost. Diversification reduces the risks of losses emanating from the drop in prices of the underlying se-curities. For example, if one share or market sector does not per-form well, this may be mitigated by the strong performance of other shares or sectors in which the fund is invested.
• Easy access to your money – There are no minimum investment periods when you invest in a unit trust, you can invest for as long as you like and you can convert your units easily to cash at short notice usually within two to four working days.

• Flexibility – One can change from a single lump sum to monthly in-vestments, increase or decrease the amount according to your indi-vidual needs. You can also move your money around to other funds.
• Cost-effective – Unit trusts are a simple and effective way of invest-ing small amounts. Investors in a unit trust fund share the trading and administration costs as funds are pooled and invested together.

NB: It is very important that:

• You READ the fund fact sheet (the objective of the fund and the fees chargeable) before you make an investment into any fund.
• You choose a NAMFISA registered Management Company and fund manager when choosing to invest your money. If you are doubtful, you can always contact NAMFISA with the details of the institution for further information and/or verification.

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