Page 68 - Profiles's Unit Trusts & Collective Investments - September 2024

CHAPTER 3

their charges). Under the old system, unit trusts were
obliged to offer the same scale of charges to all investors, Income Accrual
and many management companies wanted to be able to offer Income accrual is defined in
reduced fees to institutions without reducing fees to CISCA as any dividends or
individual investors. interest (or any other income)
As a result of these pressures, unit trust fees were received by the trustee, custodian or
further deregulated from April 2000. In order to protect manager on behalf of investors in a
pre-2000 investors, management companies may not portfolio and for distribution to investors.
increase the fees of those unitholders. A fund established
before 1998 that wants to increase fees has to have two
structures: it has to preserve the old structure (usually as Quartile
Class R fees), and must then introduce a new scale (usually
Class A fees) to apply to new investors. All of these changes Technically, a quartile is the
can apply to both initial charges and annual fees. mid-point of either the top or
bottom half of a data set (the
In summary:
median is the mid-point data value).
Class R charges apply to funds in existence before A “top quartile” fund is therefore a fund
June 1998, and to unitholders invested prior to which has beaten at least 75% of other
1 April 2000. funds. A “bottom quartile” portfolio has
The charges apply to both lump sums and debit been beaten by at least 75% of other
orders. In other words, a CIS manager cannot increase funds.
either initial charges or annual fees for an existing
debit order client established before 1 April 2000.
On reinvestment of dividends from a lump sum investment made prior to 1 April 2000, the fund
is also obliged to stick to the old charges (ie, Class R charges).
Class A charges are applicable to all new investments into funds with Class A charges. Not all
funds necessarily have both Class A and Class R fees (some have stuck with their old fees).
Class B and C units are based on fee structures which apply to institutions or other
“wholesale” clients. CIS managers are sometimes reluctant to publish these fee structures.

ETF Unit Classes
Unlike other collective investments, an ETF can only have one unit class (separate unit classes
would require separate listings on the stock exchange).
Where a manager offers reduced fees for lump sum investments above a certain threshold, these
management fee differences are dealt with as rebates (ie, a portion of the fixed annual management
fee deducted inside the fund is returned to investors who meet the criteria for lower fees).

Income Declaration
Income is earned by a portfolio from two main sources: dividend payments from equities, and
interest earned from cash and fixed-interest securities. Such income earned is for the benefit of the
investors in the portfolio.

Total vs Annual Returns
The total return of a fund (sometimes also called the cumulative or absolute return) is the
total value of the investment at the end of a defined period. Annual returns, by contrast,
express the investment performance as an average annual rate of return.
The difference is important. Using a total return figure, a fund might advertise a return of 30% over
three years (ie, meaning the fund grew from R10 000 to R13 000 over three years). The equivalent
annual compound return is only 9.1% per annum. “Growth of over 50% in just five years” looks good
on a brochure, but a total return of 50% over five years is less than 8.5% per annum.
This handbook prefers annual compound returns because they make it easier to compare
different periods. Overseas this is sometimes referred to as CAGR (compound annual growth rate).

66 Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts