Page 52 - Profile's Unit Trusts & Collective Investments - March 2026

Chapter 3 Costs and pricing

In order to calculate the number of units an investor will get for a particular capital investment, the
initial charges must first be deducted, as shown in Table 3.1.
Note that only a small minority of funds still apply initial charges (although fees payable to
a financial adviser are handled in the same way where applicable). Where no initial fee or broker
commission (financial adviser fee) is payable, the number of units that will be purchased is simply
the capital amount divided by the NAV unit price.
Charges and costs
Under the old Unit Trusts Control Act (UTCA), the fees paid by investors were divided into three
distinct areas: initial charges, annual service fees and compulsory charges. Under CISCA, initial
fees are levied against an amount to be invested before units are bought at the ruling NAV unit price.
Initial fees are therefore a charge against starting capital. By contrast, annual fees and compulsory
charges are recovered on an ongoing basis from the portfolio (usually monthly but sometimes more
frequently).
Nowadays more than half of all inflows into collective investment schemes are via platforms
(LISPs), which means intermediaries and investors have to understand two levels of costs: those
imposed by the underlying fund manager, and those levied by the platform. Obviously the latter don’t
apply where an investor deals directly with a fund manager.

Initial fees
There has been a significant shift away from initial product-level fees in the unit trust industry,
and very few fund managers or platforms in South Africa still charge initial fees on retail collective
investment schemes. Where upfront charges are applied, these are most commonly advice fees
payable to an intermediary for financial advice services, rather than deductions that flow directly to
the manager or LISP.
In terms of CISCA, charges remain largely disclosure-based rather than price-regulated, and
managers of collective investment schemes are not subject to prescribed fee caps under the
Act. CISCA defines what charges may be levied against a portfolio but does not prescribe limits
on upfront charges deducted before participatory interests are purchased. However, in practice,
product-level initial fees are now uncommon in the mainstream retail market.
As at December 2025, only a very small minority of local retail funds still levy any form of product
initial fee. This excludes advice fees payable to financial advisers and platform fees charged by
LISPs, which must be explicitly agreed to and disclosed to the investor.
Try to avoid confusing initial charges levied by the fund, the platform and the adviser. At Profile
Media, we often use the term “entry costs” to describe the total upfront costs which apply when

Cessions
In law, a cession is a way of assigning one’s rights in an asset or property to another legal entity.
In simple terms it can be thought of as the transfer of the claims against one creditor to
another creditor. Although a cessionary has full rights in the ceded assets, a cession is not
a transfer of ownership (the investment remains in the name of the unitholder); it is more like a type
of surety.
Where an investor has a holding in a collective investment scheme portfolio, the fund is, from the
investor’s point of view, a debtor (ie, the investor has a claim against the fund equal to the value of
the investment, and this “debt” must be paid to the investor on demand). In legal terms, therefore, the
investor is one of the fund’s creditors.
Unit trusts are not used often as collateral for loans, but they can be. Most unit trust companies allow
investors to complete a cession form instructing the company to record a cession against a unit trust
investment (or port of an investment) in favour of another individual or legal entity (a creditor).
The cession restricts the cedent from transacting on and withdrawing the ceded investment.
As long as the cession remains in place, the cedent may not withdraw, transfer or switch the ceded
units without the written consent from the cessionary.

50 Profile’s Unit Trusts & Collective Investments March 2026