I first heard about unit trusts in 2018. Since then I have invested in several of them and I recommend them to whoever cares to listen. Units trusts are what you would call collective investment schemes. Basically, different people pool resources and hand them to an investment manager who manages the investment on their behalf. Unit trust should not be confused with investment clubs or SACCOs.
In Uganda, unit trusts are regulated by the Capital Markets Authority (CMA) under the Collective Investment Scheme Act, 2003. The market has grown tremendously as adoption and awareness have increased. Currently, there are six licensed firms offering unit trusts and these include UAP, Britam, ICEA, Xeno, Sanlam, and GenAfrica. According to the CMA quarterly report for the period ended December 2021, unit trusts held about ugx 984 billion in Assets Under Management (AUM).
A breakdown of AUM by asset allocation at the end of December 2021 indicates that investments in Government of Uganda bonds took up 67% of the total AUM followed by Fixed Deposits at 13.7% and Government of Uganda Treasury Bills at 9.3%.
There are several benefits to investing in unit trusts. First, unit trusts are a very simple investment vehicle. It’s very easy to sign up because all you need is some kind of identification and only ugx 100k. There is no active management by the investor. It’s really a passive form of investment. Most of the funds provide monthly statements and online access to monitor your investment. So it’s ideal for working people who don’t have the time or energy to run side hustles or businesses.
Second, unit trusts are quite flexible. There are several options to choose from depending on your needs. You can also deposit and withdraw any amount of money at any time. This flexibility provides a truly liquid investment.
Third, the interest is moderate given the low-risk nature of unit trusts. Most of the underlying assets are regulated assets like treasury bonds and bills. You can also benefit from the compounding effect by leaving your funds intact for some time. Typically unit trusts earn about 9% to 12% per year. Also, the interest income earned by unit trusts is currently tax-exempt.
Finally, unit trusts are regulated by the CMA. There is also a governance structure around them. The actual assets are held by a custodian who is usually a bank. There is also a trustee who oversees the whole operation. Plus, you have a professional manager who actually does fund management. Because of this regulation, unit trusts are fairly safe compared to other investments.
From my experience, the best approach to investing in unit trusts has been to first identify my investment goal. For example, it could be saving up for school fees. I then typically automate the saving decision using a monthly standing order. So every month, some money is automatically sent to my unit trust whenever I am paid. This simple practice has enabled me to accumulate some liquid cash that I can use to meet my everyday needs.
In conclusion, unit trusts are some of the simplest investment vehicles out there. They are fairly safe, passive, give moderate returns, and are quite liquid. I would definitely recommend anyone to have unit trusts as part of their asset portfolio.