Page 44 - Profile's Unit Trusts & Collective Investments - March 2025

CHAPTER 2

Rand-Denominated and Base Currency
It is common practise internationally for collective investments to disclose their domicile
and base currency. The base currency is the “denominator” of the fund – the currency into
which everything is converted for purposes of valuing the fund’s assets. This does not mean
the fund only invests in that currency – it might hold assets (including cash) in various currencies
around the world.
Due to exchange control regulations, all South African funds are rand-denominated. We are
unlikely to see locally domiciled funds with non-rand base currencies until such time as exchange
controls are lifted. Foreign currency-denominated funds available in South Africa are legally
domiciled overseas and are usually referred to as offshore funds.

A unit trust pools the money of many people and
Gilt invests it in shares, bonds, money market instruments
A gilt is a government bond. The and other investments. This pool is then divided into
government raises capital for large identical units (participatory interests), each unit
projects by issuing medium and containing the same proportion of the assets in the
long-term fixed-interest-bearing securities on portfolio. Unit trusts set a minimum investment amount
the capital market. Gilts are so-called because –investors canchoosetoinvestalump sumoramonthly
the issuer (the Government) is regarded as an debitorder.Lumpsumstypically startatR1000
excellent credit risk and therefore offers a (although two managers offer access at R500) and
“gilt-edged security”. minimum monthly debit orders at R200 (although there
are a handful of funds with minimums of R100 a month).
Unit trust management companies are required to
operate their investments within the requirements of
Equities
CISCA. Each fund must have an investment policy or
“Equity” usually means stock or mandate (set out in the CIS’s deed) to which it must
shares which represent part of the adhere.The investment mandatemustbeinlinewiththe
funding and ownership of a Association for Savings and Investment South Africa
company. Equity reflects ownership interest in
a company, and the rights to share in the (ASISA) unit trust category in which the fund is classified.
company’s profits. Equity stands in contrast The primary purpose of these mandate requirements is to
to debt instruments (like bonds or protectthe investmentsofunittrust holders. Criticsof
debentures), which provide funding but do not unit trusts point to the fact that some of these
usually confer ownership or a share of profits. requirements have the effect of limiting the upside
The term is also used to mean the excess in performance of unit trusts.
value of an asset over any debt or other Given that each unit (or participatory interest) is
encumbrance attached to the asset. exactly equal, and that the sum of all units in a
particular unit trust equals the value of the portfolio, it
follows that the value of one unit can be easily
calculated by dividing the value of the portfolio by the
Income
number of units in issue. The net asset value of a
Another term for the return portfolio is the market value of the investments in the
received by an investor through portfolio less any liabilities due by the fund (such as
dividends and interest, as opposed
to capital growth. An income unit trust is one administration costs not yet paid).
specially designed to produce primarily
dividends and interest. Income reinvestment Fees
is the process of adding interest and dividends The manager of the unit trust (the management
to the existing capital sum, increasing the company) is entitled to charge certain fees for the
value of the investment. services rendered in administering the fund’s affairs
and managing the portfolio. A number of types of fees
are used, but the most common is the annual service fee. Initial fees were once also common, but
are now rarely imposed.
Initial charges, as the term implies, are a once-off fee applied when units are purchased. Only a few
dozen managers still quote initial fees on fact sheets, and these usually relate to adviser fees. Usually

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