Investment

The Different Types of Unity Trusts and How to Start Investing in Them

BY Steve Biko · July 12, 2019 06:07 am

Investing your money is an amazing way to build your wealth and increase your financial worth over time.

Investing allows you to put your money in vehicles that have the potential to earn strong rates of return and one great way is investing in Unit Trusts.

Unit trusts are investment options that pools resources from different investors who share a given interest or objective.

They provide access to a wide variety of investments and is overseen by a fund manager.

The different types of unit trusts include equity funds, money market funds, fixed income funds, and balanced funds.

Aside from being affordable, unit trusts are liquid, low risk, managed by professionals and regulated. This makes them accessible and safe. But what are the different types of unit trusts?

Equity Funds

An equity fund is one that invests primarily in stocks, which is why they are sometimes called stock funds.

They are suitable for individuals who have a relatively small amount of capital to invest. While stock funds will let you access investments that require large capital, you won’t be able to control which equities your fund manager invests in.

You will also have to pay for the expenses that come with managing your portfolio. Regardless, the low initial investment and low risk make equity funds a worthwhile long-term investment.

Cytonn Investment’s Private Equity Fund seeks to unearth value by identifying companies and growing them through capital provision & partnering with their management to drive the strategy by primarily invest in Financial Services, Education & Human Resources, Information Technology, Hospitality Industry, and Real Estate.

Money Market Funds

A money market fund (MMF) is a vehicle that invests in highly liquid securities, such as fixed deposits, that will mature in under 13 months.

The main purpose of an MMF is to provide investors with a safe holding zone for money as they decide on which to do with it next.

Investments in a money market fund are easily accessible, secure, highly liquid and require relatively small amounts of capital to invest in. They also earn higher interest than most savings accounts.

Arguably, the most attractive feature of an MMF is that the interest earned is compounded daily. Most MMF’s have easy withdrawals that do not take more than 5 days when an investor wants to pull out.

On the flip side, MMFs are not suitable for long term investments, since they offer little or no capital appreciation and they are sensitive to interest rate changes.

The Cytonn Money Market Fund offers a unique investment vehicle since interest is earned daily, it offers capital preservation, it provides its investors with high-interest returns on their low-risk investment and there is ease of entry and withdrawal of funds for their investors.

Fixed Income Funds

A fixed income fund invests in government and corporate debt securities, for instance, government bonds, investment grade corporate bonds, and high yielding corporate bonds.

It gives returns at pre-determined intervals, say quarterly or semi-annually.

If you are looking for steady cash flow, then a fixed income fund would be perfect for you. In addition, it will offer you a better and cheaper diversification opportunity than someone who chooses to invest in individual bonds and debt assets.

However, fixed income funds are slightly riskier due to constant buying and selling. What’s more, it is difficult to predict how much you will earn in a given year since the rate will fluctuate.

Even so, the fact that they are managed by professionals means your investment will be in experienced hands.

Balanced Funds

A balanced fund is a type of investment that holds both equity and debt assets. The primary objective of this kind of fund is to gain some capital appreciation while simultaneously offering investors an income.

As the name suggests, it tries to strike a balance between achieving higher returns against the risk of losing money, which it does by splitting money among different types of investments. If you invest in a balanced fund, you may have little say in what securities your money is invested in.

You may also get lower returns than other types of unit trusts. On the other hand, you will get a cost-effective, safe and diverse investment portfolio.

If you are thinking about investing in a unit trust, discuss it with a trusted financial advisor, who will guide you accordingly. The unit trust you choose will depend on various factors, including your risk appetite, investment goals and the amount of capital you have.

Crucially, choose a fund manager with a proven track record and one who is known for consistently offering above-average returns.