Why your Money should be in a Unit Trust

A unit trust is an investment scheme that pools money together from many investors who share the same financial objective. It is managed by a professional fund manager who invests the pooled money in a portfolio of securities such as shares, bonds and other money market instruments or other authorized securities. The pooled money in the unit trust fund earns income in the form of dividends, interest income or capital gains. The four common unit funds in Kenya are money market funds, equity funds, fixed income funds and balanced funds. If you are new to investments, you might want to consider a unit fund. Here’s why:

1. Unit funds are managed by experts

Unit trusts are run by investment managers who have an in-depth knowledge of market dynamics. They know which high yield solutions are available, can predict performance based on past experience and what day to day processes and transactions need to be done. Basically, they do all the hard work and constantly look for ways to get the most productive yield.

2. Are regulated by the government

All unit trust managers must be authorized by the Capital Markets Authority (CMA) under the Collective Investment Schemes Act. They must also adhere to the regulations put forth by the CMA, such as appointing a trustee, or risk being delicensed. Furthermore, they cannot take certain risks with your money. All this should reassure you, the investor, that your investment is safe. While this limits your returns to a certain degree, it also lowers risk.

3. Transparency

Unit trusts must publish their daily and effective annual yields in the daily newspapers, unlike private investment products. They are also required to send each investor a monthly statement showing you how much you have made. More importantly, you are able to compare your trust manager’s performance against competitors.

4. Good returns

Unit trusts on average perform better than traditional investment products. Obviously, returns and risk vary depending on the type of unit trust, but on the whole, they offer higher returns. Additionally, they offer a cushion against inflation, because your money grows instead of staying idle in the bank.

5. Easily redeemable

Many investors are frustrated by the lengthy process involved in taking their money back. However, with unit trusts, your investment is more easily accessible, whether you are redeeming part of or your entire investment.

6. Lower risk

Since unit trusts generally invest in a wide variety of asset classes, they lower risk. Often, small scale investors cannot spread their money across enough investment vehicles so that they can reduce risk. However, since unit trusts pool money from many small-scale investors, they make this a reality for such individuals.

In general, unit trusts are a great way to invest your money. Depending on your needs, capital, risk appetite and preferences, you can choose from among the many options that are available. With so much to gain, you really should consider putting your money into a unit fund.