We have covered unit trust funds multiple times on this platform. Many times we have compared their performance to individual ZSE stocks and the exchange-traded funds available. This comparison focuses on the rate of return to simplify things. However, when looking at unit trust funds there are many factors to consider. Today we will look at the variables one should consider when looking at unit trust funds to invest.

Fund manager

The first factor to consider is the manager behind the fund. This is critical as the fund manager determines the selection of assets in the fund and their continuous arrangements in an attempt to achieve maximum returns. The choice of fund manager also impacts the accessibility of the funds. Old mutual for example is available via the online portal C-trade in addition to purchasing directly through the fund manager.

Past performance

Many would have heard the saying “past performance does not equal future performance”. That is true. However, when looking at unit trust funds in the Zimbabwean context the ability of the fund manager to navigate in the past can give us some idea of their capability to navigate in the future.

Purpose

The purpose of a fund is also a vital piece of information to look into. Funds have differing horizons. A look at the GroWealth January 2022 Unit Trust Report will give you some insight into the variation in funds. This is not looked at in isolation but rather as compared to your own investment goals. A short term fund is more suited to short term horizons as a long term fund suits those with longer horizons better. Make sure the fund’s duration matches your goals.

Maturity

Maturity when it comes to funds relates primarily to the vesting period. Funds will have a lock-in period, a period the units must be held before they can be disposed of. This is especially important if the money has a defined purpose for the fund investor. You will want to make sure that the fund you invest in matures before you need the money.

Minimum buy-in

Unit trusts tend to have very small units priced under $2. However, funds will impose a minimum buy-in amount. This can be anywhere from $100 to $5000. This impacts how often one can afford to buy in as it creates a binding floor. If you regularly have amounts below the threshold you may need to find another parking vehicle for your money while you accumulate an amount that meets critical mass. Holding the money in Zimbabwean dollar cash is undesirable thanks to the effect of inflation on cash balances.

Fees

With managed funds come management fees, to compensate the fund manager for the work they put into selecting the assets the fund invests in. Fees are normally stated as a percentage of the assets in the fund or amount invested. Fees impact the effective rate of return. A fund that returns 5% while charging fees of 4.5% has an effective rate of return of 0.5% which will understandably not be flattering to many investors. Make sure you are clear on the impact that management fees will have on your rate of return.

If you are interested in finding out this information about unit trust funds you should get your hands on the Growealth report which is published monthly with performance data on unit trust funds. The report also gives insight into fund managers.