- The investor pays a cash amount into the unit trust, e.g. N$ 1 000.
- The N$ 1 000 (less up-front unit trust fees) is converted into a certain number of units. The number of units allocated to the investor depends on the price of these units at the time that the money is invested.
- The price of a unit is calculated based on the value of the assets* in the unit trust on the date on which the investor makes the N$ 1 000 investment.
- To illustrate with a simple example: If the value of a unit is N$10 on the day that the investor pays N$ 1 000 into the unit trust then the investor will receive 100 units.
- The price of the units will increase if the value of the assets that the unit trust is invested in increases. For example, the units might increase to N$ 12. Since the investor holds 100 units, the value of his investment has now increased to N$ 1 200.
- If the assets owned by the unit trust reduce in value the unit price will reduce too. If, for example, the unit price reduces to N$ 9. The value of the investor’s 10 units will be N$ 900.
- A unit trust with a conservative investment objective is less likely to have units that decrease in value than a unit trust with an aggressive investment objective but it will also have smaller unit price increases overall.
- Since unit prices do move up and down on a daily basis, it is recommended that if you invest in a moderate or aggressive unit trust, you should not invest for a period of less than five years.
- If the investor wants to take his money out of the unit trust, he can sell his units. The amount that is paid to him would be calculated based on the value of the units on the date on which he sells them.
* Assets are equities, bonds, cash etc. It is also referred to as a portfolio of investments.
