Page 40 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 2 Basic concepts

open-ended investment companies (OEICs) schemes, participatory bonds, declared collective
investment schemes, and collective investment schemes in property.
Offshore investment schemes are dealt with specifically under CISCA. In terms of the Act,
“foreign” CISs which wish to solicit business in SA must apply to the Registrar to be approved and
registered. They must be authorised and supervised by a regulator operating in a similar regulatory
environment to that in SA and must establish a representative office in SA or enter into an agreement
with a South African management company. Anybody who solicits business for a foreign CIS which
is not approved by the Registrar is guilty of an offence and is liable to a fine and/or imprisonment.
While the type of structure used to house a CIS is not unimportant, classification according to
underlying assets is generally of more interest to investors.
The underlying assets making up the portfolio of a CIS could include any or all of the following:
R Cash – money “on call” in overnight deposits
R Fixed deposits – fixed term interest-bearing investments
R Money market instruments – examples are Bankers’ Acceptances and NCDs
R Bonds – loan stock issued by government or parastatals
R Local equities – JSE listed shares
R Offshore equities – shares listed on overseas stock exchanges
R Derivatives – geared instruments such as futures, options and warrants
R Unit trusts – some CIS portfolios consist of investment in other CISs, such as funds of funds,
which invest in other unit trusts
R Property – JSE listed property companies
The names (and classification) of CISs typically reflect the type of underlying assets.
Classification is dealt with more fully in a later chapter, but some examples are:
R A money market fund invests in cash and short term money market instruments.
R A general equity fund invests predominantly in equities (whether local or offshore), but may,
depending on its mandate, also hold bonds, cash, money market instruments, and may even
have a small exposure to derivatives.
R A bond fund invests primarily in gilts (government bonds), debentures and other long term
bonds – again, depending on its mandate.
R A hedge fund makes use of derivatives to hedge positions in the market.
R Real estate investment trusts (REITs) invest in fixed commercial and industrial properties,
such as factories, office blocks and shopping centres.
R A CIS in participation bonds holds mortgages over property which are funded by the investors
in the scheme. According to CISCA, investments in these schemes must be for a minimum of
five years.
Some categories of underlying assets – such as equities – are themselves highly diverse, and
as a result equity funds are often more narrowly defined. Resources stocks (gold mines and oil
companies, for example) have very different characteristics to financial stocks (such as banks
and insurance companies), so CISs which specialise in particular areas of the equity markets are
classified more specifically as, for example, resource equity funds and financial equity funds.
These are known as “specialist” equity funds, differentiating them from “general” equity funds,
which invest in the shares of all types of listed companies.
In addition to classification according to the types of underlying assets held in the portfolio,
collective investments are also classified according to geographic classes.
Funds can be divided into products that concentrate on local investments, funds that concentrate
on overseas investments, and those that contain a mix of the two. In addition, a narrower focus can
be specified for overseas funds, depending on whether they invest in a specific country or region
overseas (like Europe or America), or whether they spread their investments throughout the world.

38 Profile’s Unit Trusts & Collective Investments September 2025