Page 55 - Profile's Unit Trusts & Collective Investments - September 2025

Costs and pricing Chapter 3

Annual costs are not the only issue. Entry costs such
as initial charges or upfront fees or commissions paid Real returns
to financial advisers also have an impact. Very few Real returns can be defined as net
managers, platforms and independent financial advisers investment returns achieved after
charge initial fees. Initial fees and commissions are inflation. If inflation was 4% over the
still used by tied agents and particularly on investment year and a portfolio achieved 6% growth, the real
products sold to lower-income earners. return was 2%. Rates of return before inflation are
When an initial fee is charged, the impact can be called nominal returns.
significant. At an upfront fee of 3.45%, investors pay
away R3 450 for every R100 000 invested. In a fund achieving 10% per annum, this turns into over
R23 000 over 20 years. It might be argued that this is not a significant difference given the total return
at the same rate on R96 550 (the capital invested after payment of the upfront fee), which is almost
R650 000, and that 3.45% is a small price to pay to get the correct advice, but the fact remains that
R23 000 is not an insignificant amount. It highlights the fact that fees must be evaluated against
the quality of advice given. There is no point, as an investor, in saving on costs but ending up in
a mediocre fund. On the other hand, there is no value in paying advice fees only to end up in an
expensive active fund which underperforms passive funds.

Transactions
Conceptually, the calculation of a price on a daily basis for each participatory interest in a CIS is
straightforward: the market value of the portfolio is calculated, and this is divided by the number of
units in issue.
From the point of view of the management company, things are slightly more complicated. For a
start, market values may need to be obtained from a number of different markets, both in SA and
overseas. Once an accurate portfolio valuation is in place, the pricing department also deals with:
R Accrual of all interest and dividends due to the portfolio
R Distribution of interest and dividends when applicable
R Any liabilities against the fund (such as service fees, accrued audit fees, trustee fees, and so on)
In a large management company, the administration department will provide the pricing
department with the number of units in issue at the close of trade, taking into account the sales of
units, repurchases of units, and any switches that have taken place.
The final price of each participatory interest, known as the net asset value price, can now be
calculated by dividing the net portfolio value by the number of units. This is the price published in the
daily and weekly newspapers, and is also the price at which units are repurchased.
Purchase and repurchase
Most SA unit trusts repurchase units at the NAV price without any deductions. This makes it
easy for an investor to calculate the total value of an
investment in a unit trust by looking up the NAV price Table 3.1
in the daily newspaper or on the fund’s website. Unit price calculation
To give a simple example, if an investor holds Clean price 356.64
26 405 units in a unit trust, and the published price
for the fund is 357.12, the investor’s holding is worth Income accrued 0.48
R94 297.54. NAV 357.12
R 26 405 units multiplied by R3.5712 per unit = Capital for investment R100 000
R94 297.54 Initial charge R5 700
The purchase of units is less straightforward if
initial charges are levied by management companies, Amount allocated to units R94 300
LISPs or advisers. Number of units 26 405.69
In order to calculate the number of units an investor As shown, to calculate the number of units that will be
will get for a particular capital investment, the initial purchased for a given amount, the amount after deduction
charges must first be deducted, as shown in Table 3.1. of initial charges is simply divided by the NAV price.

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