What Unit Trusts Are
A Unit Trust Fund is an investment scheme that pools money together from many investors who share the same financial objective to be managed by a group of professional managers who invest the pooled money in a portfolio of securities such as shares, bonds and money market instruments or other authorized securities to achieve the objectives of the fund. In exchange of the money received from the investors, the fund issues units to investors who are known as unit holders. The fund earns income from the investment in the form of dividends, interest income and capital gains. The underlying value of the assets of a Unit trusts is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. (Capital markets Authority-Kenya)
The current environment emanating from the Covid-19 pandemic is unprecedented and has had a huge and adverse impact on both the demand and supply chain.
Financial institutions, such as banks and insurance companies, with the support of their respective regulators, have come up with different programmes to cushion customers from current economic slump.
These include extension of loan terms or issuing loan and premium repayment holidays.
The payment holidays are meant to offer relief to people who may be experiencing financial difficulties in honouring their contractual obligations.
Usually, the market demands some level of certainty and stability, but the current environment reflects neither of these.
Even more unsettling, we do not know when the economic environment will stabilise or if there is going to be a second wave of the spread of Covid-19 or how far out we are in terms of production of a vaccine.
That said, and in terms of making an entry into the market, it depends on, but not limited to, your financial position and time horizon.
Investors, who probably deemed the market levels prior to the pandemic as pricy, have a higher risk appetite and long-term view, could take advantage of the fall in asset prices, of course with a view of their financial position.
It is important to understand the basic tenets of savings and investments haven’t really changed; what will change is how we do it.
In the current environment, it’s vital to focus on your financial position and make choices depending on your priorities and goals.
You can proceed to save and make investments with a view of your objectives and constraints using regulated channels in the market such as unit trusts.
Unit trusts are collective investment schemes for savings. Investments into a unit-trust are informed by but not limited to your risk appetite, risk tolerance, liquidity needs and time horizon.
There are different types of unit trusts, ranging from equity fund (most risky due to higher allocation to equities), balanced fund (moderately risky due to lower allocation equities) and money market (no allocation to equities).
The choice of unit trust depends on the investor’s objectives, constraints, and financial position.
Unit trusts are open ended, meaning you can invest and withdraw whenever you wish.
This gives you the flexibility to save some money that you have access to. At times like these, it is important, for example, to build up an emergency fund for an unpredictable future.
This would be money set aside in case of loss of a job or lack of income.
This kind of saving can help you pay for your living expenses up to six months or one year.
Emergency funds can enable you make payment of an untimely huge expense.
Unit trusts allow you this flexibility and do not constrict you to a contractual agreement that if broken will hinder you to access any funds.
You can also cut on your expenses, for example, by selling your car. Invest the lumpsum in a money market and quickly build up a fund which you can access when the need arises.
Nowadays, using your mobile phone, you can invest in the fund of your choice.
You need to know what your goal is, how long you want to invest and if you need to take any risk.
It is also quite easy to encash an investment in a unit trust in case you are in urgent need of cash.
Within two to three working days you can get your cash if you are to go the traditional way of writing a letter or email.
If you need the cash within a few minutes, you can withdraw from your mobile i-invest account.
Finally, when making an investment decision at a time like this, safety is key.
When investing, find out where your money is being invested: is it readily available?
In recent years, we have seen at least two Money Market Funds that unfortunately had bad investments.
There is no guarantee or insurance that will cover those losses for the customer/unit holder. Do you trust the brand and does it have a form of history?
How long have they been in operation? Do not rush for quick and high returns, but rather consider steady growth in your investments.
To learn more on unit trusts,how they work, pros and cons and the operational schemes at the time of publications download full report here
— The writer is a portfolio manager, asset management, UAP Old Mutual
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