Page 68 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 3 Costs and pricing

R 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).
R 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 Exchange Traded Fund (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.
Under the Unit Trusts Control Act (UTCA), management companies were obliged to account
separately for income and, after recovery of their own charges (which could only be deducted from
income), to distribute the income to unitholders.
Most unit trusts have continued with this practice. Because the SA tax system treats income
from interest and dividends differently, management companies provide investors with a statement
showing the split between interest and dividends on any particular distribution.
Under CISCA, a unit trust can elect not to make distributions – provided this is clearly spelled out
to investors and incorporated into the trust deed. (A fund already making distributions would have
to get such a change approved and give unitholders plenty of notice.) A fund structured in this way
simply absorbs income received into the portfolio, using the proceeds to buy more assets. This type
of fund, known as a “roll-up fund”, is fairly common overseas.

Reinvestment of distributions
As we saw when we discussed compounding, most unit trusts in SA offer automatic reinvestment
of income as a benefit to investors. Investors who elect automatic reinvestment don’t receive a cash
distribution; instead, the value of the distribution is used by the CIS manager to buy further units in
the portfolio for the investor. From an administrative point of view, this occurs on the same day that
payments are made to those investors who are receiving cash distributions.
Note that what happens with reinvestment of dividends is not the same as what happens in roll-up
funds (also known as accumulating funds).
In a roll-up fund, income received by the portfolio (interest and dividends) is simply absorbed back
into the portfolio. It becomes part of the cash of the portfolio, and can be used to purchase further
assets. A roll-up fund does not report interest accruals to each investor, but accounts for interest and

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 compound annual growth rate (CAGR).

66 Profile’s Unit Trusts & Collective Investments September 2025