A unit trust (also known as a ‘fund’) is a collective investment scheme, meaning professional portfolio managers pools money from investors with similar investment goals and uses the combined money to invest in assets like shares, bonds and property. The assets that these unit trusts are allowed to buy are restricted by the mandate, in order to protect you against mismatching assets that do not fit your needs and goals.

Investing in a unit trust is easy because unit trust managers purchase assets (like shares) on your behalf. Our investment minimums are affordable and start from as little as R250 per month or a once-off amount of R2 000. In exchange for your investment you receive participatory interests, or units in the particular unit trust. Being one of several investors, you can together afford to buy a variety of high quality assets, even if the assets are more expensive than your investment. Investors share in the value of the portfolio equal to their participation. Each unit represents an equal share in all the assets held by the unit trust. We make sure that well-qualified and experienced portfolio managers have access to the latest market information and know how to use that information to enhance your financial wellness.

When you invest in a unit trust, your investment is subject to less potential negative effects caused by a market segment performing poorly since we invest your money in various markets, sectors and asset types. You also get access to specialised markets and opportunities outside of South Africa - if the investment’s mandate allows that. When you need your money you can sell from your investment on any business day, making a unit trust more convenient than owning the individual assets. Please remember that you can only sell from your investment after 40 days from the first collection date of the investment amount.

Your decision should be based on the following factors, your:

• Financial needs and goals;
• Risk tolerance;
• Investment time horizon;
• Need for access to your money;
• Tax effect.

Speak to a tax consultant to achieve optimal tax structuring for your investments.

For each unit trust we invest in line with the unit trust’s investment mandate. We can invest in different asset types, countries, and industries. Each of our unit trusts has its own risk profile based on its investment mandate. It is important that the unit trust that you invest in is aligned with the above factors. If you need any help, a Momentum financial planner will gladly assist you.

Like any investment, there are risks involved. Unit trusts are no exception and their returns are not guaranteed. Unit prices can go up or down as market conditions change.

Volatility is the change in an investment’s value in reaction to a change in the market or the market risk.

• The value of an investment can go up or down;
• Investment performance is not certain;
• Investments with higher volatility have more of these ups and downs in the short term but, if you stay invested for longer, your investment can grow more than an investment with low volatility;
• High risk investments might experience high volatility. This means that market uncertainty may affect the volatility of investment values.

An investor with a high risk profile will typically invest more in high growth assets like equities and property. Although these assets are likely to give higher investment returns over the long term, they can very likely experience periods of higher volatility. Assets may even lose value during periods of increased volatility but, by staying invested for longer; the investor has the best chance of benefitting from the expected higher investment returns these growth assets can deliver.

Investing and investment returns are often associated with the choice of the underlying assets. Assets react to market risk which may lead to higher or lower values. Investment markets are volatile and the asset prices change based on a number of factors; like changes in the economic climate, interest rates and the political and social environment. Changes in asset prices will affect the value of the assets held in collective investment schemes (unit trust) and, as such, the prices of these unit trusts.

Market risk includes the following: If a rand investment holds assets in another currency, the value of these assets in rands will experience ups and downs as the foreign currency to rand exchange rate fluctuates. This is referred to as currency risk.

Concentration risk refers to the case where there is an unhealthily high concentration of investment into one specific investment, investment type, or investment segment. Collective Investment Schemes regulations limit the amount that any unit trust may invest in different asset categories, thereby spreading the risk across asset classes and within each class.

Liquidity risk refers to how easily an asset can be sold for cash at a fair price when needed. Foreign currency investments typically take longer to sell and convert back to rand. Credit risk is where the issuer of an asset may not be able to deliver on their agreed payments or refund the investment amount.

Inflation risk is the risk that your investment and its investment return does not keep up with inflation and that you actually lose purchasing power because of the higher prices of consumer goods.

Political risk comes from instability from changes or uncertainty of a country’s government, its policy makers, or military can result in lower market confidence. This is reflected in lower prices of that country’s assets.

Tax risk relates to any change to tax laws or the interpretation thereof that affect how collective investment schemes are taxed.

Compliance risk refers to the risk that an investment manager does not comply with the law, regulations, prescribed investment limits, and its own mandate.

The investment return of the different assets in the unit trust investment portfolio is distributed to investors regularly (at least once a year). We can automatically re-invest all distributions back into the unit trust for which you will receive more units or, if you specifically request it, the distribution amount can be paid to you. If your distribution is less than R20, we will automatically reinvest it.

Income tax Your investment can earn interest or dividends, or both from South African or foreign assets.

Local and foreign interest received is taxed as gross income. As a South African tax payer you qualify for interest exemption. The exempt amount changes each year with the Minister of Finance’s yearly budget speech.

Dividends from South African companies are subject to dividend withholding tax. Any dividend amount you receive from a South African company is after dividend withholding tax that has been deducted and paid to Sars. The dividend withholding tax rate is confirmed in each year’s budget speech. As from 1 March 2017, the dividend withholding tax rate is 20%. Foreign dividends are taxed as gross income; using a formula resulting in an effective rate of 20%.

When you sell or dispose of units in a unit trust, you may be liable to pay capital gains tax. Here too, you have an exempt capital gain amount each year that you do not pay tax on. 40% of a capital gain, after allowing for the exemption, may be taxed.

Estate duty When you die, your units are part of your estate and subject to estate duty and executor fees.