The main conclusion is that, although they are a form of mutual fund, unit trusts are structured and regulated differently in South Africa. Both strategies are excellent possibilities for accumulating long-term wealth because they give investors accessibility, competent management, and diversification.
Unit trusts are the most widely accessible mutual funds for South African investors. However, looking into offshore mutual funds may offer more options if you want to participate in international markets.
What Are Mutual Funds?
A mutual fund is a type of investment fund that pools money from multiple investors to invest in a diversified portfolio of assets, such as:
* Stocks (equities) – Shares of companies.
* Bonds (fixed income securities) – Loans to governments or corporations.
* Money market instruments – Short-term, low-risk investments.
* Real estate and property assets – Investment in commercial and residential properties.
These funds are professionally managed by fund managers who make investment decisions based on the fund’s strategy.
How Mutual Funds Work
• Investors buy shares in the mutual fund.
• The fund manager invests the pooled money in different assets.
• Investors earn returns through dividends, interest, or capital appreciation.
• The value of the fund changes daily based on market performance.
Mutual funds are common in the U.S. and global markets, with various regulatory frameworks depending on the country.
What Are Unit Trusts?
A unit trust is a type of mutual fund commonly used in South Africa and other Commonwealth countries. It operates similarly to a mutual fund but has some structural and regulatory differences.
Unit trusts in South Africa are regulated by the Financial Sector Conduct Authority (FSCA), ensuring transparency and investor protection.
How Unit Trusts Work
• Investors buy units instead of shares.
• The fund manager pools money from investors to invest in stocks, bonds, and other assets.
• The value of units is calculated daily based on the Net Asset Value (NAV) of the fund.
• Investors can buy or sell units at any time since unit trusts are open-ended funds.
Because unit trusts are regulated within South Africa, they offer a safe, structured way for investors to access local and global markets.