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Understanding how unit trusts are priced

Feb 11, 2019

Allan Gray’s Ray Mhere explains how a unit trust is priced and what it means for you as an investor.

unit trustsMany of us are familiar with unit trusts as an easy and affordable way to access financial markets. Your money is combined with the money of other investors who have similar investment goals. Investment managers use the pool of money to buy underlying investments to build a portfolio, which is then split into equal portions called units. The number of units investors get depends on the amount of money they invest and the price of the units on the day they buy.

How a unit is priced

The maths behind unit trust pricing is simple: first work out the assets under management and then minus operating expenses before dividing this figure by the number of units. The assets of the unit trust are the shares, bonds, cash and property that the unit trust owns on behalf of investors.

Operating expenses, on the other hand, comprise fund management fees, trustee and custodian fees, audit fees, bank charges, transactional costs and VAT. Once operating expenses are subtracted from assets, this figure is then divided by the total number of units bought by investors.

It is the change in value rather than the actual unit price that determines the performance of a unit trust.

But trouble arises when you start comparing unit trust prices, while ignoring the value of the underlying assets. If we have two unit trusts both with assets of R1 000, but one has 50 units and the other five, their prices would be R20 and R200 respectively. An investor would be mistaken in thinking that one is 10 times more valuable than the other by virtue of its price.

Unit trusts are priced differently from shares

There is a vast difference between the price of unit trusts and shares. The share price of a stock is agreed to by buyers and sellers at a given time and often is a wild guestimate based on sentiment, mood and herd behaviour.

By contrast, the price of a unit trust comes from the actual value of the investments within it, with sentiment playing no direct role. If investors fall in love with a stock and buy it in excess, the price of that stock will be driven up, but if investors love a unit trust and buy it, it won’t influence the unit price. The price may however be influenced if the unit trust holds the favoured stock in its portfolio as its asset value would increase.

How should you compare unit trusts?

Instead of just looking at price, the correct way to assess a unit trust is to see how the price per unit has grown over time, usually shown on a fund’s factsheet as a percentage return over different periods. This will give you an indication of the track record that the investment manager has for creating wealth.

The second thing investors need to do is examine the unit trust’s operating expenses (shown as a total investment charge on the fund’s factsheet) to make sure these are not excessive.

In addition to performance and costs, think about what you need from your investment and the risk you are comfortable with. Find an investment manager whose style and philosophy resonate with you; alternatively, speak to an independent financial adviser to help you make the right decision for you.

This article first appeared in City Press.


  1. Would you please explain how second flows and income equalization work in a unit trust. Thank you

  2. Hello Maya,

    How about doing an article on EAC.

    Whilst all AM companies are signatories to this new cost assessment standard, not many are willing to make the EAC figures available.

    Investors have a right to know their true costs.


    • I will tell you who willingly provided an EAC quote:

      1. PSG replied the same day.
      2. Marriott replied overnight.
      3. Alexander Forbes was quite shy at first but eventually I got a reply yesterday. It took some prodding.
      4. The 4th, a major house hold name, at present seems to be very confused with the term EAC. A lot of education seems to be required here.

      I have to say that quotes 1-3 were very competitive.

  3. I’m done with any confidence in ant unit trusts anymore. When I had an advisor my unit trusts with Old Muual performed dismally for the first 3 years after going into retirement at end of 2014, in spite of doing my own accurate spreadsheets taking into account what I drew for income. They were performing even lower than the Old Mutual Money Market fund. Then I was ripped off of R100000.00 by the Old Mutual Global Equity fund after removing my advisor and doing my own switches, when the Rand got stronger after Zuma was kicked out. So I switched the money I had in my Living Annuity from the Global fund to the Money Market fund. And what was not locked in by Government law as a Living Annuity I invested in two fixed deposits for 5 years with Standard Bank, one gives me part of my income at 10% per annum, the other has just a bit under 4 years to go performing at 12.1% per annum compounded. Neither of those have any admin fees, just an initial R50.00 once-off charge to set up the contract. And the Old Mutual Global Equity fund has gone even further down, and I would have lost 50% and more of my Living Annuity, a terrible thing to face when one has to pay the bills in retirement, with no more income from a job or business.


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Maya Fisher-French author of Money Questions Answered

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