Unit Trust: A smart investment choice for your portfolio

Unit Trusts Are a type of collective scheme in which investors pool their money together to invest in a diversified portfolio of assets, such as stocks, bonds or other securities.

Despite their importance in the investment landscape, particularly for those looking for a hands-off approach or specific active management strategies, unit trusts are unfortunately sometimes disregarded in favour of other investment vehicles like direct stock investments and other low risk savings.

It goes without saying, smart investment choice is all about balancing risk with potential returns, as well as aligning investments with your financial goals, and unit trusts stand out as a smart choice for a portfolio diversification and enhancement.

Let us explore why unit trusts present a compelling investment opportunity, and how they can enhance a well-rounded investment plan.

To start with, unit trust funds offer flexibility in terms of investment choices and strategies. Investors are spoiled with choices based on their risk tolerance, investment goals and time horizon. For instance, investors can choose equity funds for growth, interest bearing funds for income or balanced funds for a mix of both. This variety allows investors to tailor their portfolios to align with their financial goals.

For individual investors, especially those with minimal resources, achieving a diversified portfolio on their own can be challenging. Thus, unit trusts make it easier for such investors to gain exposure to a broad range of assets, such as stocks, bonds and other securities, within a single fund.

This diversification helps spread risk, as poor performance in one asset class can be offset by better performance in others compared to when buying each asset separately.

Moreover, unit trust funds typically have lower minimum investment requirements compared to investing directly in individual securities. This accessibility allows investors with small amounts of capital to participate in a diversified portfolio without needing sizeable initial capital.

Unit trusts also offer the option to make recurring contributions, which facilitates the discipline of saving and investing. Investors can also take up the option of automatic reinvestment. The compounding effect of reinvested earnings in a unit trust can significantly grow the value of investments over time.

Unit trusts provide liquidity as well, meaning investors can purchase or sell units on a regular basis, often daily or weekly, depending on the fund. This flexibility provides investors with the ability to access their funds relatively quicker, making unit trusts a practical choice for those who might need to adjust their investments or even access cash any time they need it.

It is important to note that unit trusts are typically subject to regulatory oversight, which provides investors with a level of protection and transparency. Unit trusts are required to provide regular updates on their holdings and performance, allowing investors to stay informed about their investments.

To conclude, unit trusts are managed by professional fund managers who have expertise in selecting and managing investments. These professionals conduct thorough research, analyse market trends and make informed decisions to achieve the fund’s investment objectives.

For investors, this means access to professional management without needing to actively manage their own investments. This is particularly valuable and/or helpful to those who lack the time or expertise to make investment decisions themselves.

• Trophy Shapange is the managing director of Lebela Fund Managers.