My next couple of newsletters are supposed to talk about what a Unit Trust Fund is, together with some interesting stuff on how they operate. So here goes part one.
In other parts of the world, these things are also called Mutual Funds, or Collective Investment Schemes. Mutual meaning many of us together, collective meaning we collectively invest in this thing. The name ‘Unit’ would refer to you and I owning units, or parts, of an investment fund. The use of the word ‘Trust’ is because all of these investment funds are governed, regulated, watched over, by independent Trustees. In SA we find that this is usually the Trustee department of one of the large Banks. For my examples through these mails, I am going to use Pick n Pay as the example of owning a listed company. But my thoughts would apply to any one of numerous other companies, whether that be in South African, or maybe Diageo in the UK, or Colgate-Palmolive in the US, or Nestle in Europe. (Just a by the way, these companies might be based on one country’s stock market, but they trade their product all over the world, because you might well have their whiskey and toothpaste and hot chocolate in your cupboards at home.)
The price of one PnP share yesterday ended the day at R59.38 per share, at 5.05pm. (Share prices of companies vary from small amounts like R20 to well over R1000, for just one share) Now with your and my debit order of only R300 per month, you would not be buying many shares with each payment and it would take a while for you to build up a spread of various companies. So some clever person once said, ‘why don’t we create a system/space/fund, that can pool everyone’s smaller pieces of money and then we can use that as enough money to go and buy many shares, and then those people giving us small bits of money can be given a small part of that whole big ‘collective’ investment fund, in the form of a proportionate number of units. Hence the average you and me can own a very small portion of many companies, through smaller parts.
Next week, I am going to look at how and why their price might move up and down and what effects them on a daily basis. This newsletter will get far too long if I try to cover it all today. And I don’t want you to get bored and close the email.