Unit Trust FAQs

UNIT TRUST DEFINITION:

  • It is a pool of savings by unit holders (members)
  • This pool is invested by professionals in selected shares, cash, and interest bearing instruments.
    • A unit trust is a separate, independent legal trust set up to meet a stated investment objective.
    • The trust is then broken up into equal-ranking units
Description
  1. What is a unit trust?

A unit trust is a collective investment scheme in which investors’ contributions are pooled together to purchase a portfolio of financial securities, such as equities (shares), bonds, cash, bank deposits etc. The portfolio is managed by professional fund managers.
Each unit trust fund or portfolio has a specific investment objective – income, growth or a combination of the two. The investment objective of a particular unit trust will determine the proportion of the fund invested in a particular security such as company shares.
As the name suggests, a unit trust has a trust framework, with the investments held by an independent custodian. Unit trusts are regulated by the Capital Markets Authority to ensure that they are safe and that only registered professionals are involved with the affairs of the unit trusts.
Unit trusts and other collective investment schemes such as mutual funds have been around the world since the 1930s and have become very popular as the ideal alternative in providing cost effective access to stock markets and fixed income investments, and diversifying one’s portfolio of investments.

  1. What is a unit?

Your contributions to a unit trust are used to purchase units. Each unit represents
an equal fraction of the total value of the pool of invested money.
Units in the CIC Unit Trusts are bought from the fund manager, CIC Asset Managers Limited, and sold back to them in the event unit holders need to redeem their units.
When you invest in a CIC Unit Trusts, the number of units you are allocated is calculated by dividing the amount you invest by the offer price at the time. As an example, if the offer price for each unit is Kshs 10, an investment of Kshs 250,000 will buy 25,000 units.
The value of units moves in accordance with the performance of the unit trust’s assets.

  1. What Should I consider before I invest in a Unit Trust?

Before considering investing into a unit trust, the following should be ascertained:

  • Your risk profile;
  • Your time horizon for the investment; and
  • Your financial goals – immediate, short, Medium and Long-term
  • Liquidity- Whether you require regular income from the investment or purely looking for capital growth.

Unit trusts are considered appropriate investment vehicles for individual investors wanting to gain long-term exposure to financial markets.
However, the value of a unit trust depends on the value of the underlying assets within the portfolio. Therefore, the value of the unit trust will fluctuate as the values of the underlying assets fluctuate.

  1. When is the best time to invest in unit trusts?

You can invest at any time.

However, it is very difficult for an investor to predict market conditions i.e. to buy units at the lowest price and sell them at the highest price. Our fund managers have knowledge and insight into the workings of the financial markets which enables us to provide the investor with expertise which take in into account market fluctuations and applies an effective investment strategy. One of the most common mistakes made by investors is to switch in and out of unit trusts based on short-term performance figures. Periodic switching between funds can lead to increase in the cost of transactions, which can reduce the return on your investment. It is important to note that portfolio managers do not manage funds on a short- term basis. Most portfolios, particularly equity funds, are managed to generate consistently good returns over a period of five years and above. A good strategy is to buy unit trusts on a regular basis – termed shilling cost averaging. This method allows you to avoid the risk of poor timing, which may result in buying when the market is high and selling when the market is low.

  1. What are the benefits of investing in a unit trust?
  • Diversity: Unit trust scheme spread the risks involved in investing because they invest in a variety of underlying assets. As an individual you would need a lot of money to buy even the smallest quantity of the many different shares offered by a unit trust fund. But, by investing a small amount in a unit trust, you are exposed to a wide range of investments.
  • Professional fund management: You should choose investment managers who have successfully made investment decisions through a wide variety of market conditions over a long period.
  • Investment amounts are not prohibitive: With unit trusts, a small sum allows you to invest in a well-diversified portfolio.
  • Your investment is easily accessed: You can redeem your unit trust investments (convert them back into cash) whenever you need the money. There are no minimum investment periods, although the Association of Collective Investments recommends an investment horizon of between three and five years.
  • Security of your funds: Unit trusts are well regulated through the Capital Markets Authority and controlled by the Collective investment Schemes Act which prohibits investment managers from taking certain risks. They also come with safeguards; each unit trust fund is compelled by law to appoint a trustee who looks after all the cash, shares or bonds that your fund owns. The trustee will usually be a bank or a strong financial institution. This means that if anything happens to the unit trust company or the asset manager your investment will not be affected.
  • Access to the schemes investment mandate: Every fund has a mandate, a legal contract that sets out its investment aims and how it intends to invest to achieve these aims. A fund’s mandate gives you an indication of how risky the investment is. The trustee of the fund is responsible for ensuring that the asset manager adheres to the fund’s mandate.
  • Transparent information and communication: Daily newspapers publish the prices of unit trust funds, and you can therefore always confirm the value of your investment. You need only multiply the number of units you own by the price published in the newspaper. It is mandatory for the scheme to issue monthly statements showing your investments position.
  • Excellent Returns: History has shown that average returns from unit trust companies compare very favorably with returns from more traditional investment products. Unit trusts have also proved themselves as an excellent way of beating inflation. The longer you leave your money invested, the greater the opportunity for growth.
  • Lump sum investments: A lump sum investment can be made at any time during the life of the investment, resulting in the entire investment benefiting from the growth and income potential of the chosen unit trust.
    Following the opening of your account, you are able to top up your account with a minimum of Kshs. 1,000.
  • Monthly Investment Plan: A regular monthly investment can be made into your account resulting in an easier way of building capital. A monthly investment has the benefit of shilling cost averaging, where additional investments can be made during times of market weakness.
  • Switching: Investors are able to switch their investments between different portfolios depending on their changing needs and environment.
  • Cash Withdrawal Facility: The Cash Withdrawal Facility allows you to take regular withdrawals from your unit trusts. The facility is useful if you are investing for a specific event in the near future where you will require a regular flow of cash -to pay for a wedding, school fees or to supplement a regular income. The Cash Withdrawal Facility is flexible, simple and tax-efficient.
  1. What returns can I expect from my investments?

Investment returns on a unit trust fund depend on the following:

  • Returns from the financial markets;
  • The type of assets within the unit trust portfolio; and
  • The management skills of the portfolio managers.

The value of shares, bonds and other asset classes are determined by financial markets and can rise or fall over time (fluctuate).
In general, equity-based unit trusts provide the highest potential return, followed by balanced and fixed income fund respectively and finally money market funds. In addition, the level of investment return is generally related to the level of risk incurred i.e. the higher the potential risk, the greater the potential return.

  1. What are some tips for successful investing?
  • Write down your investment goal
    This could be meeting future education expenses, retirement, payment of a deposit for a house or a savings plans
  • Determine your investment term

Be honest and realistic about the time commitment for your investment. It is recommended that investments in unit trusts be medium to long-term investments for excellent and guaranteed returns.

  • Identify your risk profile

Different investment funds and investment vehicles have different risk exposure and individuals have different risk appetites. It is important to understand the level of risk associated with different types of investments and what level one can accept.

  1. Select the fund that best meets your characteristics.

Money Market Fund: The fund aims to obtain a high level of current income while preserving investor’s capital. The Fund will invest in money market securities (near cash holdings) with a maturity of less than 12 months which are usually available to the wholesale or institutional investors. Potential investments include: interest-bearing securities such as bank deposits, bank acceptances and other short-term money market instruments including short- dated treasury bills and commercial paper.  The Fund is designed for investors who require a low risk investment which offers a high income yield, capital stability and immediate liquidity. The Fund is a good parking place or safe haven for investors who wish to switch from a higher risk portfolio to a low risk, high interest portfolio, especially during times of high stock market volatility. It is also ideal for investors who wish to make a lump sum investment and wish to reduce timing risk by regularly transferring amounts to other more aggressive portfolios. This is a low risk fund with zero initial charge.

Fixed Income Fund: The objective of the Income Fund is to achieve a reasonable level of current income and maximum stability for the capital invested. The fund will invest in interest-bearing securities including financially sound preference shares, treasury bills, treasury bonds, corporate bonds, loan stock, debenture stock, debenture bonds, approved securities, notes and liquid assets and any other securities which are consistent with the portfolio’s investment policy. The Fund is suitable for investors who are seeking a regular income from their investment, including those who intend to secure a safe haven for their investments in times of stock market instability. The Fund can be used a means of drip-feeding investments into the Equity Fund over a long period of time.

Balanced Fund: The investment objective of the Balanced Fund is to offer investors a reasonable level of current income and long term capital growth. This would be achieved by investing in a diversified spread of equities and fixed income securities. The Fund is suited to investors who seek to invest in a balanced portfolio offering exposure to all sectors of the market. It is also suitable for Individual Pensions Plans, Occupational pension schemes, treasury portfolios of institutional clients, co-operatives and high-net worth individuals amongst others. The Fund is a medium risk fund and has a medium risk profile.

Equity Fund: The fund aims to offer superior returns over the medium to longer term by maximizing long term capital growth. To achieve this, the fund will invest primarily in listed companies on the Stock Exchanges. The Fund aims to achieve its performance objectives through well-researched and superior share selection. This fund is designed for investors seeking medium to long term capital growth in their portfolio and who want to gain exposure to equity investments. The fund is suited to investors who want to invest their money over a period of at least 5 years and beyond. The Fund has a medium to high risk profile. Risk will be reduced through holding a diversified portfolio of shares across most sectors.

  1. How do I know my money is invested?

You will receive an alert on your mobile phone and a welcome letter in your email that will provide you with your account number and amount of money invested.

  1. How long before my money is invested?

This is done immediately the funds clear into our collection account. E.g. cheques take about 3 days to clear once banked while cash money is invested within 24 hours of receipt.

  1. What bank do I deposit money into?

ACCOUNT NAME: CIC UNIT TRUST COLLECTION A/C

BANK: CO-OPERATIVE BANK

BRANCH: CO-OPERATIVE HOUSE

A/C NO: 01122190806600

M-pesa paybill number: 600118

  1. How much is the minimum initial investment amount?

The minimum investment amount is Kshs. 5,000/- for all the investments funds

  1. How often do I receive statements?

Statements are sent to all our clients monthly within the first 5 working days at no cost if via email while postal statements are charged Kshs. 50/-

  1. How do I withdraw my money?

Unit Trusts are non- contractual and as such you can withdraw at any time. The monies will be redeemed and transferred into your bank account on record within 2 – 4 working days. 

  1. Do I have to withdraw all my money at the same time?

No. Partial withdrawals are possible at any time. However, important to note is that we will transfer the withdrawal fees to you if you withdraw more than once within the same month.

16. How do I go moving from one fund to another?

You can send us an instruction on email and we can effect immediately where the respective switching fees shall be charged as below:

FROM TO
Equity Fund Balanced Fund Fixed Income Fund Money Market Fund
Money Market Fund 5.0% 4.5.% 2.5% NIL
Fixed Income Fund 2.5% 2.0% NIL NIL
Balanced Fund 0.5% NIL NIL NIL
Equity Fund NIL NIL NIL NIL 

  1. How do I change any details to my account?

You can change any of your static details from bank details, postal and or email address, signatories, beneficiaries etc. by sending us a duly signed instruction so that we can effect the changes. This applies to all our clients. In the case of a corporate account, all signatories MUST sign for the same.

Category: