How to calculate unit trust returns
Your total return includes both the change in the unit price and any income the fund pays out, called distributions. Most investors reinvest distributions, so the simplest measure is the change in the total value of your investment.
Total return = (value now minus amount invested) divided by amount invested. If you invested R100,000 and it is worth R134,000 three years later, your total return is 34%.
Annualised return shows the average growth per year: (value now divided by amount invested), to the power of one divided by the number of years, minus one. In the example above, that is about 10.2% a year.
Fees and published returns
Fund fact sheets show performance after the fund manager's fees, shown as the total expense ratio (TER) and transaction costs. Advice and platform fees are charged separately, so your own return will be slightly lower than the published fund return. All fees should be disclosed to you before you invest.
Do unit trusts pay interest?
Unit trusts do not pay a fixed interest rate. Their return depends on what the fund invests in. Money market and income funds do publish a current yield, which moves with interest rates, while equity and balanced funds can rise or fall in value from month to month.
How unit trusts are taxed in South Africa
- Interest distributions are taxed at your marginal rate, after an annual interest exemption that is higher from age 65.
- Local dividends have dividends tax withheld before they are paid to you.
- Capital gains are taxed when you sell or switch units. Only part of the gain is included in your taxable income, after an annual exclusion, so the effective rate is well below your marginal rate.
Each year you receive tax certificates (an IT3(b) for income and an IT3(c) for capital gains) to include in your tax return. Switching between funds counts as selling, so it can trigger capital gains tax.
Money market and cash management unit trusts
Money market funds, sometimes called cash management funds, invest in very short-term instruments such as bank deposits and treasury bills. Their value is very stable, you can usually access your money within a day or two, and they often pay more than an ordinary savings account.
They are not guaranteed like a bank deposit, but they are among the lowest-risk unit trusts. Returns are taxed as interest.
Unit trusts as a short-term investment
For money you need within about two years, money market and income funds are usually the right choice. Balanced funds suit a horizon of three to five years, and equity funds need at least five years to ride out market falls. Choosing a fund to match when you need the money matters more than chasing last year's best performer.
Compare unit trusts with other options in our unit trust vs retirement annuity guide, or see tax-free investments.
Frequently asked questions.
What is a unit trust in Afrikaans?
In Afrikaans, a unit trust is called an effektetrust. It is the same product: a pooled fund managed by a professional investment manager.
Are unit trust returns guaranteed?
No. Unit trust values move with the markets. Money market funds are very stable, but even they are not guaranteed like a fixed deposit.
How long should I invest in a unit trust?
It depends on the fund. Money market funds suit short-term needs, while equity funds should be held for five years or longer.
Do I pay tax when I switch unit trust funds?
Usually yes. A switch is treated as selling one fund and buying another, so any capital gain above your annual exclusion is subject to capital gains tax.