A GUIDE TO UNIT TRUSTS

CONTENTS
o Introduction to Unit Trusts 3
o Unitization 4
o Interpreting Unit Prices 5
o Structure of a Unit Trust 6
o Safety of Unit Trust Funds 7
o Benefits of Investing through a Unit Trust 8
o Risks of Investing through a Unit Trust 9
o Types of Unit Trusts in Kenya 10
o Assessing your Investment Needs 11
o Choosing a Suitable Unit Trust 12
o Features of the Zimele Unit Trust Funds 19
o Benefits of saving and investing with Zimele 20
o Frequently asked questions 21
INTRODUCTION TO UNIT TRUSTS

A Unit Trust (also known as a collective investment scheme) is an
investment alternative which pools money from many individuals and
channels it into various investments with the aim of achieving low risk
through diversification and lower average costs per member.

The funds are collectively invested in a portfolio of assets, such as shares,
bonds, money market instruments and other authorized securities, in line
with the common objective and needs of the group of investors.

Depending on the type of fund, Unit Trust funds earn income in the form
of dividends, interest received and capital gains realized from the
appreciation of the assets invested in.

In Kenya, Unit Trusts are regulated by the Capital Markets Authority
(www.cma.or.ke) , a corporate body set up in 1989 through an Act of
Parliament with the mandate of promoting, regulating and facilitating the
development of orderly, fair and efficient capital markets in Kenya.
 UNITIZATION

Unit Trust funds are valued using the unitization method, the number of units a
member receives will depend on the amount of money invested and the prevailing
unit price, less any fees charged.

Unit trusts are open-ended investments which means they constantly create and
redeem units based on purchases and sales of existing and new members.

The price of each unit is based on the market value of the underlying assets in
which the Unit Trust funds have been invested, and is calculated at the end of each
business day. The unit price is also called net asset value (NAV).

Unit price = (Market value of investments + other assets) – Liabilities
Total number of units issued

Each time money is invested, new units are created to match the prevailing unit
buying price for the day. Similarly, each time units are redeemed, the assets sold
match the prevailing unit selling price. In this way, there is no supply or demand
created for units and they remain a direct reflection of the underlying assets.
 INTERPRETING UNIT PRICES

Unit Trust prices are published in the leading daily newspapers from Tuesday to
Saturday. The name of the fund, together with the unit buying and selling price are
indicated in the ‘Business or Financial’ section of the Newspaper.

The difference between the Unit ‘Buy’ and ‘Sell’ price represents the specific fund’s
fees. These are the costs incurred by the Fund Manager in investing the pooled
funds, or rather the payment made by Unit Trust members for the time and
expertise of the Fund Manager in looking after their investments.

The ‘Sell’ price is the cost an individual incurs when buying units. It reflects the
Unit Trust’s net asset value (NAV) plus fees and charges.

The ‘Buy’ price is the amount which a Unit Trust member receives when selling
units. It simply reflects the NAV of the fund, which excludes any fees and charges
imposed by the Fund Manager.

Hence, the ‘Sell’ price is always higher than the ‘Buy’ price.
STRUCTURE OF UNIT TRUSTS

Under the requirements of CMA Regulations, Unit Trusts are required to have the following
structure:

UNIT TRUST
MEMBERS

CUSTODIAN FUND
MANAGER FUND TRUSTEES
Ensures that Ensures that the unit ADMINISTRATOR
trust funds Ensures the efficient Safeguards the interests
members’ of Unit Trust
are invested running of the
investments are members
prudently operations in relation to
safe
of the Unit Trust CMA Regulations
THE SAFETY OF UNIT TRUST FUNDS

The Trustees of the Unit Trust play a key role of protecting the interests of the unit trust
members at all times.

A Fund Administrator oversees the affairs of the Unit Trust, ensuring that they are efficient
and legal.

The Fund’s Custodian looks after the assets of the Unit Trust, namely investments and
money, providing safety.

The Fund Manager is an independent professional company appointed to invest the Unit
Trust funds.

This separation of roles ensures good corporate governance while minimizing operational
risk, thereby enhancing the safety of Unit holders’ funds.

Moreover, each Unit Trust fund has a specific investment objective and investment
guidelines developed to achieve this objective, which guides the investment activities of the
Fund Manager.
BENEFITS OF INVESTING THROUGH
A UNIT TRUST
1. Diversification: Unit Trusts typically invest in a diversified basket of assets thereby minimizing
investment risk. This generally improves members’ chances of getting a favourable return.
2. Convenience: By investing through a Unit Trust, an investor is able to reduce the time, effort
and paperwork that is associated with managing his/her own investment assets.
3. Economies of Scale: Compared to a direct investment in shares or bonds, Unit Trusts offer an
affordable minimum investment amounts and through the pooling of members’ funds, the costs
incurred are lower.
4. Professional Management: Unit Trust funds are managed by professionals whose investment
decisions are typically based on extensive knowledge and research of market conditions.
5. Liquidity: An investor has the flexibility to convert his investment into cash whenever the need
arises. In addition, Unit Trust members are allowed to transfer money from one fund to another
at no extra charge.
6. Divisibility: Unlike other assets such as houses and cars which cannot be apportioned, units can
be redeemed in part or full.
7. Access:Through Unit Trusts, small investors are able to invest in a broad range of investments.
8. Choice:A range of Unit Trusts are availble to investors to enable proper matching of each
indivudual’s unique risk and return profile.
9. Regulatory protection: The industry is regulated by the Capital Markets Authority (CMA).
 RISKS OF INVESTING THROUGH A
UNIT TRUST
a. Market risk: Unexpected economic, political and other conditions may occur, resulting in a
negative impact on investment returns either in a particular asset class or in the local macro-
environment in general.This risk applies to all investments in general, and not only to Unit
Trusts.
b. Security risk: The returns of a particular investment, such as those from shares, bonds, or other
financial instruments, are highly affected by the performance of the issuer, such as a corporate
body. Generally, Treasury instruments are viewed as zero-risk, given that they are guaranteed by
the government.
c. Currency risk: For Unit Trusts which invest in international markets, there is a chance that the
value of specific foreign currencies, in which their investments may be denominated, may fall in
value, hence having a negative impact on investment returns.
d. Management risk: Unit holders rely on the Fund Manager to manage their funds in their
interests and to make appropriate investment decisions, under the watchful eye of the Trustee.
Hence, the returns made by the Unit Trust depend on the manager’s skills, experience and
efficiency.
 One way of reducing the risks associated with investing is diversification, either within the Unit
Trust or as an individual with money in different Unit Trusts. Different investments tend to
perform well at different times, so by having funds in different investments, poor performance
by any one investment will be compensated by better performance of other investments.
 ASSESSING YOUR INVESTMENT
NEEDS
The choice of where to set your savings aside for future spending and how to invest depends
on various factors, all of which must be considered before you do so.

1. Financial objectives: You need to set out what you want to achieve, in terms of your
financial goals.
2. Investment horizon: Evaluate the amount of time you have to put aside money for your
desired financial objectives. How long do you have until you need the money to meet your
needs?
3. Risk tolerance: Assess how much risk you are willing to tolerate, bearing in mind the
trade-off between risk and return. Establish what level of returns you want to get and if
the risk that comes with those returns is worth it.
4. Volatility: Depending on the Unit Trust’s investment objective, your returns may be
volatile due to the assets your money is invested in. You need to consider whether you can
cope financially with fluctuations in Unit Trust prices.
5. Affordability: Different Unit Trusts will have varying minimum amounts which you can
begin to save and invest, as well as frequencies in which you will need to make payments.
Therefore you need to consider how well this fits into your budget.
An investor can develop an investment portfolio based on personal characteristics as shown
in the following slides.
DEFENSIVE INVESTOR

This investor eliminates all investment volatility in favor of guaranteed securities. The
goal of this investor is to protect capital, using safe investments which give a definite
return. A Money Market Fund is recommended for this type of investor as well as for
investors with short term objectives.

Money Market Fund 100%

CONSERVATIVE INVESTOR
This investor opts for a measured amount of price volatility in expectation of slightly
higher long-term returns. He aims to ensure his investments keep pace with inflation so
that the value of their investment retains its buying power. They expect negative returns
to a certain limit. A combination of 80% Money Market Fund and 20% Balanced Fund
is recommended.
Money Market Fund 80%

Balanced Fund 20%

MODERATELY CONSERVATIVE
INVESTORS
These investors are comfortable with price volatility and are willing to accept the possible
modest losses in capital value in the medium-term. Over the long-term, they expect their
assets to provide sufficient returns to exceed inflation. A combination of 60% Money Market
Fund and 40% Balanced Fund is recommended.

Balanced Fund 40%

Money Market Fund 60%
MODERATELY AGGRESSIVE
INVESTORS
They seek a higher level of capital growth through aggressive investments such as a Balanced
Fund. However, this growth may be balanced by investing in a Money Market Fund in order
to manage the volatility of their total portfolio. High medium to long term returns are
achievable with this approach. A combination of 40% Money Market Fund and 60%Balanced
Fund is recommended.
Balanced Fund 60%

Money Market Fund 40%

ASSERTIVE INVESTORS
They are willing to accept a higher level of price volatility when seeking returns. Although,
they tend to hold a modest level of low risk assets such as a Money Market Fund to smooth
year to-year returns. A combination of 80% Balanced Fund and 20% Money Market Fund is
recommended.

Balanced Fund 80%

Money Market Fund 20%

AGGRESSIVE INVESTORS
These investors are considered to be long term oriented; they concentrate on achieving high
returns over a long period of time. They are likely to be fully invested in a Balanced Fund and
are able to tolerate the risk associated with this type of fund. 100% Balanced Fund is
recommended for this type of investor.

Balanced Fund 100%

FEATURES OF THE ZIMELE UNIT
TRUST FUNDS
ZIMELE
UNIT TRUST

ZIMELE ZIMELE MONEY

BALANCED FUND
Funds are invested in shares of listed
companies and interest-earning assets
such as Treasury bonds and
Commercial Paper.
MARKET FUND
Funds are invested in interest-bearing
investments such as Treasury securities
and Commercial Paper.

The Fund seeks to attain capital The Fund aims to preserve the value of
gains over time. capital invested while generating income.
 BENEFITS OF SAVING AND
INVESTING WITH ZIMELE
1. You may contribute a minimum amount of Ksh.500, and the amount and frequency
thereafter is flexible.
2. You can join as an individual, with a friend or as a group.
3. Your money will be pooled together with other members’ contributions and spread across a
wide range of investments, thereby increasing your chances of obtaining good returns at
lower risk.
4. You will only be charged 2% per annum for management fees on the Zimele Balanced
Fund, with no hidden charges or fees.
5. Your money will be professionally managed by qualified fund managers who are trained to
make investments that can deliver good investment returns.
6. You may conveniently send your contributions through M-PESA Business Number 501101
if you want to save with the Zimele Money Market Fund.
7. You will have free access to an online statement through which you can view details of your
investment.
8. Your withdrawals will be processed within a short period of time and the money will be sent
to your bank account.
 FREQUENTLY ASKED QUESTIONS

Q. How can I monitor returns in a Balanced Fund?

A. A Balanced Fund operates in terms of the number of units one has. The market value of one’s
units depends on the current price of the unit at a particular period of time. For example, one
may have purchased 1,000 units at a price of Kshs.5. If the price appreciates after a certain
period of time to Kshs.11, this means that the value of their units becomes Kshs.11,000.
Q. Do Unit Trusts re-invest dividends and capital gains?
A. Yes, the fund manager often tries to maximize returns by reinvesting returns.
Q. Do I have to invest monthly in Unit Trust?
A. Not necessarily. For the Zimele Unit Trusts, contributions are flexible in that you can
contribute any amount at any frequency.
Q. When is the best time to buy the units?
A. There is no particular best time to buy the units when one is either saving or investing long-
term.
Q. Do I have to indicate in advance how long I intend to be a member of a Unit Trust?
A. It depends on the Terms and Conditions of the particular Unit Trust, but one does not have to
sign anywhere indicating how long they will be staying in the Unit Trust.
The information contained in this Guide is provided in good faith and is derived from sources believed to be accurate
and reliable at the time of its publication. It is, however, only provided on a general basis only and does not constitute
a recommendation. For specific information and advice about your investments, please visit, call or email us.

Zimele Asset Management Company Ltd

7th Floor, Ecobank Towers
P. O. Box 76528-00508 Yaya, Nairobi.
Tel: 254-2-2246273
e-mail: info@zimele.net
website: www.zimele.co.ke