All About Unit Trusts

Thursday afternoons were made for talks. And this is proven at the Unit Trusts Investment presentation hosted by Chase and Associates and Old Mutual Investment Group at the newly opened venue Lighthouse Lifestyle in central Windhoek.

A majority of women are in the audience, no doubt to manage their finances even better, thanks to some advice from the finance experts.

And the key to all of this is saving, particularly with a unit trust.

It may seem intimidating to most, but in fact, a unit trust is quite easy to open and makes for a good investment, especially when you’re trying to save up for that holiday to Sossussvlei, or even better, a family trip overseas.

But how do you make it happen and should you put any trust in a unit trust?

The answer lies within your ability to save.

According to Old Mutual, unit trusts are affordable, tax-efficient ways of accessing stock markets by saving an amount of money which is used to invest in equities and bonds.

Almost like throwing a lump sum in the stock market and watching it grow, depending on how good the economy is looking at the moment. And surprisingly enough, Namibia is not doing too bad, so it’s the perfect time to get into the business of unit trusts.

Speaking at the discussion, financial advisor Afra Schimming-Chase used the annual bonus, which many are looking forward to spending, as an example of how you can increase your funds through investing.

“We can take our bonuses and save it as we learn the lessons of the recession. Engage with investments. You can even start with N$300 a month. You are allowed to reduce it to a lesser amount, but it makes a difference in your life.”

Further elaborating on the point of fully investing in unit trusts, Old Mutual’s Dino Ballotti said that financial planning is a process.

“Think of this: what will I need over the next few months?’ You need to choose your own game,” said the broker who has gained vast experience working all across the country to advise potential clients with this important tip: save now.

Andreas Shipanga, also an employee of Old Mutual, had some solid advice for future investors: “You can’t just blindly invest without a goal. For example, saving up for your child gives you a goal of what kind of capital you need. What happens is that you need to be active. Have an emergency cash fund. It should be about two to six months of your monthly income.”

And speaking of goals, your plan should either include a short-, medium- or long-term goal, and you can access various unit trusts based on this. A short-term goal, for example, could see you securing about N$300 monthly and in two years, you might just find your savings doubled while “a medium-term goal could be when you go overseas for a trip and a long-term goal includes properties or retirement.” And depending on how much you insert monthly, the unit trust can grow.

“For a medium-term investment, you wouldn’t really want to touch this money,” Shipanga said. “And if you put it in the bank, there are fees involved, but unit trusts vary. A unit trust basically works for you while you sleep.” And if you’re interested in the long-term investment, it’s best to get started immediately.

Unit trusts are quite flexible and cost efficient. Depending on what kind of unit trust you have, you don’t have to include a fixed amount every month. There are plenty: the enhanced income, growth, income, managed, property and real income fund.

Most of us learnt about compound interest in school, that is, the formula involving principal sums, the future value of investments, interest rates and the number of years the money is invested for. This formula also works with unit trusts.

“You can invest anywhere and usually, you don’t have to provide too much documentation. There are various investment options for you,” Shipanga said.

However, unit trusts do have high-risk areas. “Equities are high-risk investments,” Ballotti expressed. “And it really depends on the stock exchange.” In Schimming-Chase’s words: “Equities are shares. You become a unit holder and it makes it easier to invest with companies like Old Mutual.” Schimming-Chase does admit that equities took a serious dive recently. “The last three months has seen an unexpected performance.”

But the less the risk, a slightly lesser percentage of profit is expected. “There are different funds for different functions. We diversify,” Ballotti said.

So if planning on what to do with your bonus, for example, think about what kind of lump sump you want to put away with a monthly investment. “Sometimes you get an increase in your salary, but you don’t really enjoy it. But start where you are, even if it’s putting aside N$200 a month. And plan. In November, buy your school uniforms and December, buy your stationary. Then Januworry will become Januhappy. Sacrifice is a negative word, it’s rather a commitment to you,” Schimming-Chase emphasised.

Advising that it was better to have a compound interest scheme rather than just dumping a lump sum in an account, Schimming-Chase said it was like “earning interest on an interest without touching your money. The sooner you begin, the better.”

If you ever go to a financial advisor to pick out the right unit trust, remember to ask the following things, according to Ballotti: “There are two questions to ask: how risky are you? And how long do you want to save? You should experience a sense of trust in your advisor. Ask whatever question you want. And be involved in your financial plan.”

As explained, a risk conversation is important. After all, it’s your own money that you are putting on the line. At the end of the day, no one cares about your money more than you do. So remember to make the right investment and never feel pressured to enter into an agreement.

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