Posted: Thu, 29 Jun 2006 07:21 © Moneyweb Holdings Limited, 1997-2006
HEALTHY competition among unit trusts plays to your advantage. If you’re contemplating an investment into unit trusts, it is worth shopping around and weighing up your options. How you invest in unit trusts will depend on whether you want to use a broker, as well as if you expect to change money managers. If you’re a do-it-yourself investor there is an increasing number of unit trust companies that make their products available to the public. For example, Allan Gray, Old Mutual and Coronation all have investment application forms available for download on their websites.Investing directly saves you broker’s commission, but you will still be liable for an initial fee if one applies. For example, Old Mutual charges an initial fee of 2,28% for amounts less than R5 000. For amounts above R5 000 there is no initial fee. The second main way of investing in unit trusts is through a linked investment service provider (Lisp). This product makes sense if you plan to switch between fund management companies frequently, or if you want to manage investments in a variety of unit trusts from one central platform. Put simply, a Lisp acts as a unit trust wholesaler. It buys unit trust in bulk and then sells them on to retail investors. Equinox, an internet-based Lisp that claims its fees are among the lowest in the industry, allows investment into virtually all South African unit trusts. Its initial fee is a typically 0,57%, which includes the fee charged by the unit trust company. Until recently, the low initial fees offered by Lisps gave them a very distinct cost advantage over a direct investment into unit trusts. But the policy of a number of unit trust companies to offer products with no (or a substantially reduced) initial fee has reduced the cost edge of Lisps.Annual management fees vary according to how much you invest. For amounts less than R600 000, the management fee is 0,68% a year. This decreases as the investment grows. The annual fee is over and above the fee charged by the fund manager. This fee can seriously erode your investment returns over time. The beauty of Lisps, however, is the freedom it gives investors to switch between asset management houses cheaply and easily. They also allow you to manage various unit trust investments from one platform. Normally, if you switch between different types of funds within an asset management house, the only fees incurred will be the difference in costs between the two funds. For example, many investors switch out of cheap money market funds to more expensive equity funds once they have accumulated a decent sized investment.Switching between asset management houses is a different story though. Every time you switch, you have to close down your investment, open a new one, and incur all the associated costs.However, if you invest in a linked investment scheme, switching costs can be dramatically reduced. Lisp switching fees are only 0,29% - and you do not have to open and close accounts. Investing directly or through a Lisp can be done either through a lump sum payment or through a debit order. Unit trusts are suitable investments for the small investor, because they allow investments as small as R100 a month or a R1 000 lump sum.
