What is a Unit Trust? A Complete Guide To Investing in Unit Trusts in Uganda
Introduction
Unit trusts are a popular investment vehicle that allows individuals to pool their resources into a professionally managed fund. They offer diversification, accessibility, and professional management, making them an attractive option for both novice and experienced investors. In this guide, we explore what unit trusts are, how they work, and how they compare with other investment options such as real estate and treasury bonds. Additionally, we discuss the regulatory environment for unit trusts in Uganda.
Why You Should Read This
- Learn the fundamentals of unit trusts and how they work.
- Compare unit trusts vs. real estate vs. treasury bonds vs. fixed-income deposits vs. company shares to find the best investment for you.
- Understand Uganda’s regulatory environment and how unit trusts are protected.
- Get expert insights from Level Africa, a leading investment advisory company.
What is a Unit Trust?
A unit trust is a collective investment scheme where multiple investors pool their money into a single fund managed by professional fund managers. The fund invests in various assets, including equities (stocks), fixed-income securities (bonds), real estate, and cash instruments. Each investor owns units in the trust, and their returns depend on the performance of the underlying assets.
How Unit Trusts Work
- Pooling of Funds – Investors contribute money into a shared fund.
- Issuance of Units – Each investor receives units proportional to their investment.
- Fund Management – A professional fund manager selects and manages investments to maximize returns.
- Open-Ended Structure – Investors can buy or redeem units at any time, subject to fund policies.
Unit Trusts vs. Other Investment Options
When considering investment options, it’s essential to compare unit trusts with other alternatives such as real estate, treasury bonds, fixed-income deposits, and company shares.
Unit Trusts vs. Real Estate
| Feature | Unit Trusts | Real Estate |
|---|---|---|
| Liquidity | Highly liquid (units can be bought/sold anytime) | Low liquidity (selling property takes time) |
| Diversification | High (invests in multiple asset classes) | Low (investment tied to a single property) |
| Initial Capital | Low (affordable entry) | High (requires substantial capital) |
| Management | Professionally managed | Requires personal management or hiring a property manager |
| Risk Exposure | Spread across various assets | Concentrated in one or a few properties |
Unit Trusts vs. Treasury Bonds
| Feature | Unit Trusts | Treasury Bonds |
|---|---|---|
| Returns | Varies based on market conditions | Fixed interest returns |
| Risk Level | Moderate (depends on asset mix) | Low (government-backed security) |
| Liquidity | High (can redeem units anytime) | Moderate (bonds can be sold before maturity but may lose value) |
| Minimum Investment | Low | Typically higher than unit trusts |
| Management | Professionally managed | Self-managed or through a brokerage |
Unit Trusts vs. Fixed-Income Deposits
| Feature | Unit Trusts | Fixed-Income Deposits |
|---|---|---|
| Returns | Market-based, potential for higher returns | Fixed returns but lower than market-linked investments |
| Liquidity | High (can redeem units anytime) | Low (funds are locked for a set period) |
| Risk Level | Moderate | Low (fixed returns, but inflation risk) |
| Flexibility | Can invest in various asset classes | Fixed deposits with limited flexibility |
Unit Trusts vs. Company Shares
| Feature | Unit Trusts | Company Shares |
|---|---|---|
| Risk Level | Moderate (diversified investments) | High (depends on individual company performance) |
| Liquidity | High | High (if publicly traded, but volatile) |
| Management | Professionally managed | Self-managed (requires stock market knowledge) |
| Volatility | Lower (spread across multiple investments) | Higher (stock prices fluctuate significantly) |
Regulatory Environment in Uganda
In Uganda, unit trusts are regulated by the Capital Markets Authority (CMA), ensuring that fund managers adhere to strict financial guidelines to protect investors.
Key Regulations for Unit Trusts in Uganda:
- Licensing Requirements: Fund managers must be licensed by the CMA to operate.
- Investor Protection: Regular audits and reporting to ensure transparency and accountability.
- Diversification Rules: Restrictions on asset allocation to minimize risk.
- Disclosure Requirements: Fund managers must provide clear information on fees, risks, and investment strategies.
About Level Africa
Level Africa is an investment advisory company based in Uganda that provides a platform where you can invest in treasury bonds, unit trusts, and fixed-income deposits. The investment process is simple and seamless:
- Sign up on the Level Africa platform.
- Complete your KYC (Know Your Customer) verification.
- Choose a product to invest in (unit trusts, treasury bonds, or fixed-income deposits).
- Load money onto your Level Africa wallet.
- Invest in less than 5-10 minutes.
Why Choose Level Africa?
- Expert advice on unit trusts, real estate, and treasury bonds.
- Personalized investment strategies tailored to your financial goals.
- Trusted by investors across Uganda.
Conclusion
Unit trusts provide an accessible and professionally managed investment option, offering benefits such as diversification, liquidity, and affordability. Compared to real estate, treasury bonds, fixed-income deposits, and company shares, they present a balanced approach to investment, combining potential growth with managed risk. In Uganda, the Capital Markets Authority (CMA) ensures investor protection and regulatory compliance, making unit trusts a viable choice for those looking to grow their wealth.
If you’re interested in investing in unit trusts or exploring other financial opportunities, Level Africa can provide expert guidance to help you make the best investment decisions.
Get in touch with Level Africa today 0765 972769!
Sign up and invest in Unit Trusts on Level Africa
How are Unit Trust Funds managed?
Depending on the objective of the unit trust, the type of securities to be bought can comprise of: equities (shares), bonds, cash, and bank deposits, etc. The portfolio is managed by a professional fund manager and the other parties in the management of unit trusts include; Trustee, Custodian & Auditors.
What asset classes do fund managers invest in?
- Local Stock Market – listed shares
- Treasury Bonds
- Commercial Papers
- Treasury Bills
- Offshore Investments
- Fixed Deposits
How do I invest in Unit Trusts on Level Africa ?
- Sign up on the Level Africa platform.
- Complete your KYC (Know Your Customer) verification.
- Choose a product to invest in (unit trusts, treasury bonds, or fixed-income deposits).
- Load money onto your Level Africa wallet.
- Start investing with as low as 100,000 UGX in less than 5-10 minutes.
What is the current minimum investment amount on Unit Trusts on Level Africa?
The minimum lump sum investment amount is UGX 100,000 in each of the respective funds. An investor can also choose to make regular top-ups as and when they feel the need to.
What should I know before investing in a unit trust fund?
To align your interest and expectations with the objectives of the unit trust fund, you need to consider certain factors before taking the decision to invest. You need to determine what your investment objective is, your risk appetite, your investment horizon and possibly whether you will need the money in the short or long term. It is important to bear in mind that the value of the unit trust will fluctuate in accordance with the underlying investments and any income may go down as well as up.
When is the best time to invest in a unit trust fund?
It is a good idea to invest regularly to take advantage of “cost averaging”. Capital market products such as shares and unit trusts fluctuate in price, sometimes strongly. History shows that it is very difficult for any investor to predict market conditions i.e. to buy units at the lowest price and sell them at the highest price. Therefore, you are more successful if you invest regularly over a long period of time.
How quickly can I access my money when I need it?
Unit trust funds on Level Africa provide you with easy access to your money. Normally, your money should reach your account within 2-3 working days upon receipt of the redemption request. You can redeem all or part of your investment at any time.
Are there any hidden tax obligations on Unit trust funds?
Unit trusts are a tax-efficient investment. A unit trust fund does not pay tax on its income, either from dividends or interest. In addition, unit trusts do not pay tax on capital gains.