A unit trust refers to an investment portfolio that is managed as a Collective Investment Scheme and divided into equal parts or ‘units’. Unit trust investors therefore buy units of the portfolio, with each unit representing a proportionate share of all the assets underlying the portfolio. The unit trust price reflects the current market value of the underlying assets, divided by the number of units in issue.
The unit trust vehicle is appropriate for if you
- want to invest discretionary (non-retirement) savings in a diversified and professionally-managed portfolio;
- are targeting a particular (non-retirement) savings goal;
- looking to a draw a regular income off a lump sum investment,
If you are saving towards your retirement, you should first consider a retirement fund for individuals (a retirement annuity or preservation fund), in light of the attached tax advantages.
Taxation: You do not receive a tax deduction for your unit trust investment (unless your investment is through a “wrapper” such as an RA fund). You are taxed on the investment returns earned by your unit trust. You pay income tax on any interest, rental income and foreign dividends. You pay a dividend withholding tax on local dividends (20% as from 1 March 2017). You pay capital gains tax on the realized profit of your unit trust investment (change in unit price multiplied by the number of unit sold). 40% of this profit is included in your taxable income and taxed at your marginal tax rate. The highest marginal tax rate is 45% since 1 March 2017.
Access: you can access or all or part of your unit trust investment at any time, subject to the service provider’s notice period and withdrawal process. On death, the unit trust investment forms part of your estate and is subject to Estate Duty per the prescribed rates.
Choice: There are 1,500+ registered unit trusts in South African. Investors face a bewildering amount of investment choice and complexity as providers offer multiple options and substitutes, with variations in the investments style and mix. This confusion and complexity forces investors to seek advice. This increases costs and the risk that investors are steered to inappropriate (high fee) products.
To cut through the clutter and cost, 10X offers just one simple balanced high equity fund. It is suitable for long-term investors (with a time horizon of 5 years or more) who want to diversify their exposure across different asset classes (rather than invest in an equities-only portfolio) and who want to minimize their fees.
Costs are an important consideration with any investment. South Africa has among the highest unit trust fees in the world. Morningstar’s Global Fund Investor Experience 2015 study calculates that the average total expense ratio is 1.6% pa, but this excludes advice and platforms fees which easily add a further 1% to 1.5% pa.
You can access the 10X Prime High Equity Unit Trust Fund fee direct from 10X, with the help of a broker. The fee is 0.5% pa (excl VAT) of your investment balance. There are no additional fees for administration, investment or performance. For investment values of R10m and more, a fee of 0.3% (excl VAT) will apply. There are no additional fees for administration and investment and no performance fees.