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Are unit trusts the best way to save, invest collectively?

An official guides policemen on how to register a unit trust during a conclusion of the Capital Markets Week at  Constitution Square on May 10

An official guides policemen on how to register a unit trust during a conclusion of the Capital Markets Week at Constitution Square on May 10

The recently-concluded Capital Markets Week organised by the Capital Markets Authority opened up several investment opportunities but none more compelling than unit trusts, a secure way that virtually guarantees fast returns, writes CHARLES NSAMBA.

If you have not personally attempted to save and invest alongside friends, family or any other group of people to which you subscribe – either by virtue of sharing an education background, or religious inclination, then you have probably heard about people doing this.

Investment Clubs, SACCOs, Chamas, whichever terminology you would prefer to use, saving and, or investing as a group remains the big idea. But what then sticks out is the security of one’s investment when done within a group, given that many of these groups tend to either ignore or are not aware of the existing legal structures that could be utilised to provide a platform for formal collaboration among the savers in the group.

Some of the challenges associated with group investments include fraud and mismanagement and yet anyone would desire to invest where they are more certain about the safety of their investment.

Over the past few years, Ugandans, especially the working middle-class living in the urban areas, have either established or joined investment clubs or groups as a way of mobilizing savings collectively for investment, with the view that once the investment is made as a group, the returns would be higher than if it were made at the individual level but the risk would also be spread across many people.

Some of these groups, however, have been registered using the existing structures, either as companies or associations, owing to the fact that there is no specific law that provides for registration of investment clubs as is the case in neighbouring Kenya, for instance.

On the other hand, the rural communities (mainly women involved in small-scale income-generating activities) have opted to save through the structure of a saving and credit cooperative society.

In fact, this model has received a lot of support from government. There is no doubt that such groups have registered several successes in terms of getting communities to mobilize resources which have been channelled to various investments in agriculture, real estate,  and the services sector such as catering and events management.

So, how do unit trusts, also known as collective investment schemes, address the fears of investment security while still allowing one to save within a group? For starters, group savings, including unit trusts, are one sure way of enabling small savers to invest in several products or assets, albeit indirectly.

In Uganda, unit trusts are managed under the supervision of the Capital Markets Authority (CMA), a government body that regulates and promotes the development of capital markets. This in itself gives a saver the comfort that their investment will be safe since it is monitored regularly by competent authorities.

But more importantly, unit trusts operate under a legally set structure, with a unit trust manager being the client-facing entity that also possesses the professional expertise to make investments in line with the firm’s investment strategy.

In Uganda, we have up to five unit trust managers licensed by the CMA, managing slightly over Shs 160bn on behalf of Ugandans. These are UAP Old Mutual Financial Services, ICEA Asset Managers, Stanlib, Xeno Technologies and the most recently licensed, Britam Asset Managers. Evidently, many of them are subsidiaries of other bigger financial institutions that operate other businesses including banks and insurance companies.

So, how then can one start investing through unit trusts?

The first step is to contact at least more than one of the licensed firms to get a good understanding of their product offering, costs involved and all this must be benchmarked against the individual’s future expectations and investment needs.

Once the unit trust manager is selected – a list of which is always available on the CMA website - an account needs to be opened with them. This is an account where all units purchased are deposited by the unit trust manager.

Once the account is opened, sales and purchases can be made by placing an order with the unit trust manager. An individual can buy as many units as they want and can sell either part, or all their units at any time of the year. This flexibility in converting the asset into cash is one of the most attractive features of this product.

Individuals could also commit to saving a fixed amount every month for a long period of time, say five or ten years. This could expose one to the benefit of compound interest on every monthly investment as unit trust managers compute returns on a monthly basis. It is oftentimes much harder to save a lump sum for investment purposes, given family and societal demands on many people’s incomes.

Therefore, saving as a group should never come at any unnecessary cost to a saver. In fact, for registered groups such as investment clubs and SACCOs, it would still make a lot of sense to invest those savings through a unit trust so that the club can enjoy the professional investment services of a unit trust manager, who does all the research about the best products to invest in and provides all the administrative management that the fund needs to operate efficiently. 

cnsamba@cmauganda.co.ug

The author is CMA communication & public relations manager

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