Unit trusts allow you to have access to the various asset classes without directly investing them. You don’t need heaps of money to have access to major private companies.
It’s small amounts of funds pooled together by many investors making up a fund. Some asset managers invest in assets classes hoping to achieve capital growth by making a profit, some want to achieve growth by ensuring an income and many funds are a combination of both.
The annual yield is calculated by adding the income payments of the past year and dividing it by the most recent Net Asset Value (NAV), which is basically the value of each share. Did you know the fund need not yield any income whatsoever yet if the price of your shares goes up you may increase the value of your investment?
This is considered to be Capital Appreciation.Beside income yields and capital appreciation a unit trust can also receive distributions. Simply put this is how it works; a fund with a Net Asset Value for instance that’s worth R100 makes a R10 distribution, so the value slips to R90 but the total rand value to the investor is still R100.
Interest and dividends are taxed differently and you must submit your necessary tax documents when completing your annual returns. While endowments are taxed within the fund, the unit trust investor is taxed at their taxable rate. This applies to individuals but companies and trusts are taxed at their flat applicable tax rate.
Unit trusts are suitable for investors who require complete accessibility and are on a 30 percent or lower marginal tax rate. Also they must be comfortable with the fact that is falls out of the estate when they pass away.
Generally one should not exit the fund when it is low and wait for a recovery but of course at inception your risk appetite suited for the appropriate term should be taken into consideration.
When drawing a monthly income from a fund, if income and dividends are declared bi-annually, you could risk dipping into the capital from time to time, which is why your planner must have a proper understanding of the fund you are invested in to give you suitable guidance.
