Make sure you get what you pay for with unit trusts

Julie Brownlee, Fsp Invest, 18 Nov. 2015

Tags: unit trusts, unit trust fees, unit trust management fees, unit trust performance fees, unit trust management



If you opt to invest in unit trusts, there are two main categories of management. There is passive, which tracks the market, and there is active, where the fund manager tries to outperform his benchmark.

These two types of management mean there are different costs involved.

So what are these different costs? And what should you be aware of when investing in unit trusts?

Let’s take a closer look…



The management of unit trusts help determine the cost of fees


Looking at the two types of fund management, passively managed unit trusts tend to have less fees than actively managed funds.

This is because with a passive fund, the fund manager tries to replicate the underlying benchmark. But with an active fund, the fund manager tries to beat the market by picking shares that outperform.

With actively managed funds, in addition to the annual management fee, you’ll pay a performance fee linked to the fund manager’s performance.


What to be aware of when investing in unit trusts


If you invest in an actively managed unit trust, you want to ensure you’re getting what you pay for.

In an industry driven by performance, many fund managers of actively managed funds end up playing it safe, almost becoming tracker funds. This means that the extra money you’re paying for active management is going to waste.

Yes, past performance isn’t an indicator of future performance, but it’s worth looking at. You want to see that the fund manager is going his job properly and now just sitting at the market average.

So there you have it. Why you should make sure you get what you pay for with unit trusts.

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