Are you looking to invest your money but not sure where to start? Unit trusts are a great way for individuals to invest in a variety of assets without needing a lot of money or expertise. Your money is managed by professionals who specialise in selecting and managing investments.

When you invest in a unit trust, your money is pooled together with other investors' funds to create a diversified portfolio. This means your investment isn't tied to just one company or asset, reducing the risk if one investment performs poorly.

Additionally, unit trusts offer flexibility, allowing you to invest small amounts regularly or make lump-sum investments. Whether you're saving for a rainy day, retirement, or a big purchase, unit trusts can be a valuable tool to help you reach your financial goals.

How much tax do you pay on unit trusts? 

Your investment in a unit trust can earn you interest, REIT income and dividends, however the combination of the earnings will depend on the underlying assets.

Interest earned is taxed in your hands, subject to an annual exemption of R23 800 for individuals aged below 65.

REIT income has no tax exemption and will be taxed in the hands of the investor.

The dividends are subject to Dividends Withholding Tax, at 20%, which is withheld by the fund and paid to SARS.

Upon disposal of the investment (whole or part) you may realise a capital gain, which will be subject to the annual exclusion of R40 000 and 40% of the remainder of the gain will be included in your taxable income.  The taxable portion of the gain will be taxed at a minimum of 18% and a maximum rate of 45%.

What are the pros and cons of unit trusts?

Pros

The investor’s annual interest rebate and capital gain exemption is used for tax purposes.Funds are highly regulated and managed by professional fund managers.Investment costs are lower in unit trust and the funds get access to wholesale yields.Unit trusts are liquid investments and can easily be converted in cash.Investors gain access to the stock exchange at an affordable price.

Cons

A disadvantage is that the investment fund is aligned to a specific investment strategy and past performance is not necessarily an accurate predictor of future performance, especially in the times we find yourselves.Due to market and price volatility, unit trusts are generally medium to long-term investments.

For more information please visit www.fiscal.co.za or see https://www.linkedin.com/company/fiscal-private-client-services