Understanding the price of a unit trust

2019-01-18 17:47

Many 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, then 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 that investors get depends on the amount of money they invest and the price of the units on the day of purchase.


The maths behind unit trust pricing is simple: first work out the assets under management, then minus the 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 the operating expenses are subtracted from assets, the remaining figure is then divided by the total number of units bought.

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.


There is a vast difference between the price of unit trusts and shares. The share price of a stock is agreed on by buyers and sellers at a given time, and is often a wild guesstimate 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.


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 fact sheet – 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 fact sheet – to make sure that they are not excessive.

In addition to performance and costs, think about what you need from your investment and the risk you are comfortable with.

So 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.

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May 19 2019