ADVANTAGES AND DISADVANTAGES OF UNIT TRUSTS

Advantages of unit trust

  • Managed by a fund manager who buys shares on the stock exchange/JSE.
  • Easy to cash in when an investor needs money.
  • A small amount can be invested per month.
  • Generally beats inflation on the medium/long term.
  • Safe investments, as it is managed according to rules and regulations.
  • The investor has a variety to choose from/a wider range of shares from lower to higher degrees of risk.
  • Easy to invest in, as investors simply complete a few relevant forms or invest online.
  • Fluctuations in unit trust rates of return are often not so severe because of diversity of the investment fund.
  • Offer competitive returns in the form of capital growth and dividend distribution.
  • Fund managers are knowledgeable/experts/reliable/trustworthy as they are required to be accredited to sell unit trusts.

Disadvantages of unit trust

  • Share price may fluctuate
  • Unit Trusts are not allowed to borrow, therefore reducing potential returns.
  • Not good for people who want to invest for a short period
  • Not good for people who want to avoid risks at all costs.
  • If blue chip companies do not continue on their growth path, the growth of unit trusts will also be affected and will not render the expected returns.
  • Bid/Ask prices exist with the price that you can buy a unit for usually higher than the price you can sell it for making investment less liquid.

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