Choosing a Unit Trust Fund to Invest In
Kelvis Iravonga  |  Dec 2, 2019  | 
Cytonn Investments
Kelvis Iravonga  |  Dec 2, 2019  |  Cytonn Investments

A unit trust is an investment vehicle used to pool resources from different investors with a common investment objective. The unit trust on itself is not the investment but it provides an avenue for investment depending on the fund in question. There are different types of unit trusts, each with a different area of interest, but they are all overseen by fund managers, who make investment decisions for the trust.

Choosing a unit trust is not a decision you should come to lightly as it has long lasting repercussions. Here are a few factors that should influence your decision:

  1. Understand different types of funds and what they offer

There are several types of unit trust funds. All UTFs are not designed to play the same role, each is role-specific complemented with different assets. Having made solid investment goals, choose a unit trust that addresses your requirements. Below are some of the UTF’s available and their areas of focus:

1. Equity funds

Is a fund made up of stocks listed by companies on the stock

2. Balanced fund

Comprises a mix of low risk and high-risk funds, which include money market funds, fixed income, and equity.

3. Bond/fixed income

Consists of investments in fixed income securities such as corporate or government bonds.

4. Money market fund

Comprises of funds invested in domestic cash and cash equivalents. The investments in such case are relatively low risk and highly liquid, that is, the assets can easily be converted to cash.

  1. Risk appetite and investment horizon

The biggest differentiator between unit trusts, aside from what they invest in, is the risk they bear and the length of the investment. Since you already know what you want to achieve by investing, then this should be an easy choice for you. If, for instance, you have a low risk appetite and want a short term investment, money market funds are ideal.

  1. Recognition and credibility

You need to understand how a certain fund manager is perceived in the market, its consistency and performance over time. You can only achieve this by doing your due diligence. Though it is a time and energy consuming endeavour. Doing this helps you establish the credibility of wherever you are investing your money.

  1. Cost of entry

Different unit trusts have different initial investments. Money market funds, for example, have a very low minimum investment, about one thousand shillings only. Others have a slightly higher minimum. As a first time investor, you need to weigh the cost of entry versus the expected return, then make your decision.

  1. Personal preferences.

You need to see if there are any specific features and constraints which may conflict your needs or preferences. Go for what works for you, where you are comfortable investing. Despite all the investment advice and the economic conditions included in your initial research, it is upon you to choose where you think you will have some peace of mind investing.