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Learn a little more about investing in a unit trust.
Feeling confused? Empower yourself with our jargon-busting glossary. All financial terms used in the explanations are defined here too, so you can cross-reference if you get stuck.
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Also see intermediary and broker. A certified financial adviser is an individual that is qualified to advise you on your investments. There are different types of advisers so please ensure that the one you select is qualified and registered to advise you on the products you are interested in.
Often advisers are ‘tied agents’, which means they work for a particular company, such as Old Mutual. A qualified and an experienced Old Mutual Personal Financial Adviser is qualified to advise you across all of Old Mutual’s products or specialise in a specific area and can help to make sure that you have the right mix of insurance, risk and investment products. Independent financial advisers can sell investments and related products and from a number of companies. Whether independent or tied, not all advisers are qualified to advise across all insurance and investment products.
When involved, advisers need remuneration for their time, effort and expertise. These fees are paid to the adviser by the investor (note that the fees only apply to investors who have chosen to employ the services of a financial intermediary (adviser or broker)) and are negotiable within regulated limits. There are two types of adviser fees, please refer to the individual unit trust fund fact sheets for the applicable maximum and minimum percentages.
This is the average rate of annual return over a specified period, taking into account
the effect of compounding.
This type of unit trust can invest across all asset classes to offer investors the
benefit of diversification, with the aim of offering competitive returns at less risk than
single asset class funds with a similar investment objective. The minimum and
maximum exposures these unit trust funds may have to each asset class are
determined by the fund mandate. This in turn defines their risk/return ratio, i.e. the
level of return you may get from a fund is directly proportional to the amount of risk
you are prepared to take on. If you have a good risk appetite you will choose a unit
trust with a high equity allowance; if you are more conservative you may opt for an
investment where equity exposure is limited.
These are different types of financial instruments. The asset classes in which a unit
trust may invest will depend on its mandate. There are five primary asset classes –
each of which is available in both local and offshore options: cash, bonds, equity,
property and alternatives. Alternatives include non-traditional instruments like private
equity, hedge funds and commodities; these are not available via unit trusts and are
aimed at institutional investors.
According to its website, ASISA represents the majority of South Africa’s asset
managers, collective investment scheme management companies, linked
investment service providers, multi-managers, and life insurance companies. The
members of ASISA have mandated this association to proactively engage with
policymakers and regulators, as well as intermediaries and consumers, on
regulatory and other important issues of common concern.
This refers to periods of sustained negative market performance.
This is an entity against which something may be measured. With unit trusts it is
usually an index, a sector or inflation. Unit trusts should at least perform in line with
their benchmark in order to deliver on their mandate. This is not always the same as
a performance target.
Individuals or organisations that you name to benefit from the proceeds of your
investment, should you die. This is particularly relevant for investors in Old Mutual
Unit Trusts’ retirement suite of products, where the investor’s desired beneficiaries
should be made clear to Old Mutual Unit Trusts.
Bonds are a fixed income investment and are based on debt, in that you as the
investor lend your money to the government or a company that wants to raise
capital. In return, they promise to repay your capital on a specific date. In addition,
you will receive interest payments at specified intervals and at a predetermined rate.
This is a complex asset class as different bonds will mature at different times, and
their values depend largely on what the interest rates are. In low interest rate
environments bonds increase in value because it is likely that the rate they pay will
be better than what your money market investment will pay.
A certified broker, or an independent financial adviser, is a person who is qualified to
advise you on structuring your investment portfolio. As they are not usually affiliated
to any one company they are able to recommend products from a variety of financial
services providers. Also see intermediary or adviser.
This refers to periods of sustained, and often inflated, positive market performance.
The amount you have to invest.
A capital gain is when you sell an asset and make a profit. The profit is your capital
gain. When you sell or switch a unit trust you trigger a capital gains event, even if
you have lost money.
This is an annual tax levied on the capital gains you have made during a financial
Old Mutual’s classic range of ten unit trusts is a smart selection aimed at
making your investment choice simple. These ten funds each suit different investor
needs or can be combined with each other, or with unit trusts from our full range, to tailor
a portfolio designed to meet your personal needs.
A collective investment scheme (CIS) is a pool of money from a group of investors,
which is used to purchase a portfolio of financial securities/assets, which is then
managed by a portfolio manager. These schemes provide a relatively secure and
affordable way to access global stock markets.
CISs are governed by the Collective Investment Schemes Control Act No. 45 of
2002. Read more.
Arguably the most powerful tool in an investor’s tool box, compounding occurs when
you reinvest your income distributions. This means that instead of cashing in on
your investment returns, you opt to leave your interest/dividend income in your
portfolio. This increases the amount of money you have that is exposed to the
growth potential of the assets you are invested in, thus giving you growth on your
This refers to different denominations of money. For example, the rand, the dollar
and the pound are all currencies.
Certain unit trusts are permitted limited use of these instruments. Common
derivatives are futures and options. These cannot exist without the other asset
classes and have no intrinsic value of their own, i.e. they derive their value from
another asset. For example, an option on a share cannot exist unless the share
exists, nor can a future exist without the asset it promises to buy.
The derivative itself is a contract between two or more parties and its value is
determined by fluctuations in the underlying asset. The most common underlying
assets include equities, bonds, commodities, currencies, interest rates and market
indices. Most derivatives are characterised by high leverage. Their benefit lies in the
fact that they can be used to manage risk, as they allow the manager to take
advantage of both positive and negative market performance.
This is the income you may derive from your unit trust investments, and can be
interest income or dividend income, or a combination of the two. You can opt to have
these paid into your bank account or to reinvest them into your portfolio.
Diversification is investing across asset classes/financial instruments in order to
limit your losses in the event of poor performance in a particular asset, sector or
Dividends are the portion of its profits a company pays its shareholders, which is
called dividend income. Dividends are usually paid biannually or annually. Dividend
income is currently tax free in the hands of individual investors.
DWT is a tax on dividends received by a shareholder and is a ‘withholding’ tax. This means that the entity paying the dividend must subtract the tax from the dividend and withhold the tax before paying the net dividend to the shareholder.
These are unit trusts that have at least 80% of their portfolio invested in local assets.
Equities are also referred to as shares or stocks. These are investments in
companies that are listed on a stock exchange, such as the JSE Securities
Exchange (JSE) in South Africa.
In South Africa, the government limits the amount of exposure individuals,
investment vehicles and companies can have to offshore assets. Old Mutual Unit
Trusts aligns the exposure of their unit trusts with eth maximum allowance for
retirement funds which is 25%, which is limit also applies to the maximum amount
of foreign investments an individual investor is allowed to own.
An ETF is similar to an index-tracking unit trust, as they both attempt to mirror the
basket of securities in an index. The key difference is that an EFT is listed on a
stock exchange, so effectively you are buying shares instead of units. The attraction
of ETFs is that they combine the advantages of investing directly on the stock
exchange (continuous pricing and intraday trading) with the benefits of an index-
tracking mutual fund (instant diversification within a regulated framework).
This law was enacted in order to protect investors. It aims to regulate the activities of
financial services providers and to outline the qualifications and experience that
authorised financial intermediaries are required to have in order to offer financial
advice to institutions and investors.
Introduced to ensure the integrity of the South African financial system and increase
the country’s attraction as an investment destination, this law was enacted to stem
the tide of fraud, money laundering and organised crime.
FICA governs the ‘know your client’ record-keeping and reporting requirements for
accountable institutions, amongst which are all financial services providers.
According to its website, the Financial Services Board is a unique independent
institution established by statute to oversee the South African Non-Banking
Financial Services Industry in the public interest. The FSB promotes and maintains
a sound financial investment environment in South Africa.
All unit trusts launched in South Africa must be approved by the FSB.
These unit trusts invest in interest-bearing securities such as bonds and money
market instruments. They usually aim to generate an interest-based income and are
considered to be lower risk investments.
These are South African registered unit trusts available via local management
companies and priced in rands. These unit trusts must have 85% of their assets
invested offshore at all times.
A fund refers to a portfolio of assets such as a unit trust, or an entity like a
retirement annuity fund where the reference is to the assets owned by that particular
retirement annuity fund.
These are unit trusts that invest in equities (shares) from a variety of sectors, so one
unit trust may include financial shares, property shares, industrial shares and
resources shares – depending on which shares the portfolio manager believes will
help them achieve the unit trust’s investment objective. These unit trusts are
regarded as higher risk funds.
An initial fee is an upfront payment on your investment and is calculated as a
percentage of your capital investment amount and deducted prior to investment. At
Old Mutual Unit Trusts you pay 0% initial fees for investments of R500 or over.
However, if your investment falls below R500 you will pay a one-off initial
administration fee of 2.24%.
If you use an adviser or a broker you will pay an initial adviser fee. Please refer to
adviser fees for more details.
This is income earned from interest-bearing assets such as money market
instruments and bonds. With the former, your income will trend in line with the
national interest (repo) rate; with bonds the interest you earn is prescribed by the
An intermediary is a financial adviser or a broker. You get many types of financial
intermediaries but all must be licensed under the Financial Advisory and
Intermediary Services Act of 2002 (FAIS). Certain intermediaries will be allowed to
sell certain products, so be sure to ask to see their relevant qualifications and
Tied intermediaries are employed by a product provider to sell that company’s
products only. Old Mutual Personal Financial Advice employs advisers who
specifically sell Old Mutual products.
Independent intermediaries or brokers work for themselves and sell products
supplied by a variety of product providers.
This is what a unit trust manager aims to meet when they are managing a portfolio.
The investment objective could be a growth target, an income target, a risk/return
target or a combination of these. This is usually linked to the unit trust’s benchmark.
This asset class consists of property management companies that are listed on a
A living annuity, like the Old Mutual Unit Trusts Living Annuity, is a market-linked
product that pays you a retirement income, at an adjustable level. You buy a living
annuity with your retirement capital. As a living annuity is market linked, its value
will fluctuate with the markets and your capital may enjoy good growth, or it may be
eroded by poor market performance. Due to this uncertainty we recommend that it
should not be your only source of retirement income.
This is the legal document, approved by the Financial Services Board (FSB), that
stipulates what the objective of a unit trust is and in what types of assets, and which
regions, it can invest.
A document containing key information pertaining to a portfolio or scheme that a manager provides to an investor to assist the investor in understanding the collective investment scheme product. Our fact sheets are also referred to as MDDs and meet the requirements of Board Notice 92 of 2014 issued by the Financial Services Board (FSB).
A unit trust that invests in money market instruments with a maturity of less than 90
days. These investments pay an interest rate related income and offer little capital
These are charged by certain unit trust funds. View the Performance Fee fact sheet.
This is the investment professional who manages the unit trust portfolio and decides
which assets to buy and sell in order to meet the fund objectives or investment
This is the return you make net of fees and inflation – i.e. how much actual profit you
These unit trusts invest at least 85% in a single country.
Regulation 28 of the Pension Funds Act outlines the types of asset classes in which members of retirement annuities, pension/provident and preservation funds may invest, and to what proportion. It aims to protect investors by limiting over-exposure to risky asset classes. Regulation 28 was amended in 2011.
This is a savings vehicle that enables you to invest towards your retirement.
Contributions are tax deductible within legislative limits and your investment is
protected should you be declared insolvent. You may not access your investment
until your retire – in South Africa the earliest age is 55 years – or in the case of
extreme illness. The Old Mutual Unit Trusts Retirement Annuity Fund is a cost-
effective example of this.
This is the profit you make on your investment.
This concept refines an investment’s return by measuring how much risk is involved
in producing that return, which is generally expressed as a number or rating. Risk-
adjusted returns are applied to individual securities and investment funds and
Companies operate in a specific part of the economy called sectors, such as the
financial sector, industrial sector and resources sector.
These unit trusts are also known as sector funds and invest in equities from one
sector. For example, a financial unit trust will be restricted to investing in shares
issued by listed financial institutions.
A stock exchange is a company that provides a market where financial instruments
may be freely traded in a regulated environment. In South Africa this is the JSE
Limited. Companies listed on a stock exchange are public companies. This means
that individuals and institutions can buy shares in companies, thereby becoming
part owners of the company.
TER stands for total expense ratio. This is the standard used to measure the impact
that the deduction of management and operating costs has on a unit trust’s value. In
other words, it gives you an indication of the effects that these costs have on the
growth of your investment portfolio. Expressed as a percentage, a TER is calculated
by dividing the portfolio costs by the market value of the unit trust. It is important to
note that unit trust performances are usually reported after fees have been taken into
account, i.e. the impact of the TER has already been taken into account.
See Collective investment schemes.
The unit trust industry uses ‘classes’ to differentiate between fees that you will pay
for investing in the same underlying unit trust fund. Old Mutual unit trusts generally
have four ‘classes’: A, B, C & R.
Class R and Class A apply to unit trusts for individual investors. Class R refers to a
fee structure that applies to unit trusts that existed prior to June 1998 and investors
who invested in a unit trust before 1 April 2000. Then legislation changed and
enabled management companies to increase their fees. Class A applies to investors
who invested in funds launched after June 1998 or in a new class launched after
those dates, if the management company chose to change or increase its fees. B
and C classes apply to institutions and other bulk buyers who enjoy the benefit of
reduced fees and charges.
These unit trusts can invest in both local and foreign assets, to a maximum of 100%