The Wealth Room

Understanding Return & Unit Price

Understanding Unit Trust Returns

Maximize your capital growth in your investment

Some investments focus purely on getting the best possible capital growth by investing in assets that the fund managers feel will grow over time. How they do this is by looking for assets that offer a great value for money, or that they feel they are getting at a discounted price to what they are worth. The fund managers will then hold onto these assets for some time, until the underlying assets get to a point that they are worth more than what they were purchased for and then sell them off at a profit.

Maximize your possible income growth on an investment

Certain investments or unit trusts main goal is to not necessarily achieve capital growth, but rather create a reliable or steady stream of income through dividend or interest payouts.

The investor who is looking for such an investment is somebody who is in retirement and is happy with the amount of capital that they have, but just wants to invest the capital to get a steady stream of income from the investment.

Best case scenario is to Maximize capital growth and earn income in an investment

If you can find an investment that can offer capital growth and a steady stream of income you have hit the cherry on the top.

Investor return

How do unit trust investments give you a return?

When you invest your hard earned funds into a unit trust, you’re buying units in the specific unit trust. You will then have the ability to share in both the capital growth and the income that that unit return earns over the period that you own the units in the unit trust.

Reinvesting the income you earn will increases your investment return

When the unit trust earns an income, it is distributed amongst all the investors who own units, in proportion to the number of units owned by the investor. You as the investor have a choice of having the income paid out to you or you can also use this income to buy more units in the unit trust over the period that you’re invested in the unit trust.

By choosing to buy more units you will benefit from compound growth on the reinvested income.

Your behaviour influences returns of your investment

The performance of your investment is not necessarily linked to the performance of the Unit Trust that you have bought into. The performance that is linked to your unit trust will depend on when you bought into the unit trust and also how you are buying and selling units in that unit trust over the period of the investment in the unit trust.

For example, if you buy shares at a point that the unit trust is at an all-time high, you might have to wait a longer time to get a return, compared to somebody who has bought units in the unit trust when it was at an all-time low.

The price that you pay for your units can dramatically influence the return on the investment.

How do they calculate the Unit Price?

The Unit price of a unit Trust is calculated by taking the total value of a Unit Trust that is called the Net Asset Value (or NAV). The Net Asset Value of a Unit Trust is all the assets that the unit trust owns less all the running expenses that the unit trust incurs. The price of each unit is calculated by dividing the NAV by the total number of units owned by all the investors.

All Video Clips and Pictures supplied by Allan Gray