Sunday August 3 2014

Saving: Why Unit Trusts is a better option

By Abraham Bakunda

Uganda has a very low saving culture, with the savings to GDP ratio’s estimated at 7.33 per cent for 2014.
Many complain that they can hardly save when they can’t even get by! Either they claim to be earning peanuts or simply have too many expenses.

I read an article recently that made a good point declaring that It is in fact the people that claim to be ‘broke’ that should have a larger need to save. Not only is it the prudent thing to do, but more importantly it is the foundation to build towards financial success.

Even for the more comfortable and wealthy, one always has to diversify not just against losses but also other risks such as liquidity risks. What happens when all your money is tied-up in illiquid investments? Or the people that take over your ‘empire’ run it down due to reasons such as greed, negligence.

If you are wealthy only you truly understand what you did to get there, and how you continue to grow your wealth. However it’s only prudent to create some sort of fall back plan that you grow over time.

Ways of investing
There are many ways for one to save and invest their money. The options taken depend on your objectives and current situation. A good number of Ugandans have taken up saving in SACCO’s.

It has allowed much access to cheaper and more flexible debt. Others have started investment clubs, but most cases have trouble figuring out the best way to invest this money.

I would like to introduce another means for one to save and invest their money. It’s called a Unit Trust.

Unit Trusts are collective investment schemes allowing members to pool their financial resources to invest in financial markets and avoid putting all their eggs in one basket. It is a relatively inexpensive way for an investor to get a full-time manager to make and monitor investments.

Unit Trusts are relatively new to Uganda, but are a financial tool that has been available to those in more developed economies for decades.

Rather than investing directly in financial securities, Unit Trusts allow an individual to purchase a portfolio or ‘basket’ that contains various assets such as shares, bonds, treasury bills, even bank fixed deposits.

The main benefit is obviously the diversification or spreading of your risk over various assets. Loss in any one investment is minimized by gains in others. Not to mention the pooling of your financial resources allows your money access to a wider range of assets.

Entry and exit into the unit trust is easy, making it a relatively liquid asset for the investor. Also minimum investments are usually quite low allowing one to save on a regular basis say, monthly. Both of these factors combine to make it a very flexible investment; you’re in control of when to add to your investment as well as when to exit.
Financial or Investment advice is complimentary. So you have someone at your beck and call to guide you through your decisions.

All financial institutions offering these services must be and are regulated by the Capital Markets Authority of Uganda.

I am of the firm view that this is something, if utilised that can greatly benefit Ugandans. You only need to open your eyes to the possibilities; Shs100,000 may seem little to some, but if saved and invested wisely can grow into something meaningful.

This can be a great Investment as its own, but also a means to other ambitions and investments that you may have.

The author is the Financial Advisor at Insurance Company of East Africa