Thread by @SoulFairy3

Something that I really struggled understanding for the longest time. Not sure how you guys feel?

An ETF is usually a passively managed index fund that trades on a stock exchange. I always tell people it is a basket of shares.

Lets say you buy the Satrix JSE Top 40. Satrix buys the actual shares of the Top 40 JSE companies and you own a piece of each.

ETF's are passive because they don't go buy and sell shares daily in there. If a company ie drops out of the JSE top 40, that's the only time Satrix will go and change the basket.

A unit trust (also known as a mutual fund) is usually an actively managed investment fund.

Here you give a fund manager your money to invest on your behalf. The fund has a mandate and the fund manager can chop and change shares daily according to the mandate.

When you buy unit trust, you don't own pieces of the companies, like in an ETF. Here you get units of the trust itself.

Unit trusts generally charge high management fees as fund managers will monitor the markets and conduct research to pick securities they think can outperform the market.

ETFs and unit trusts both have their respective benefits and risks. Besides the difference in management styles, ETFs and unit trusts also differ in terms of investment cost, performance and liquidity.

This is just an example. Every fund is different.

So which one should you choose???

Many investors who choose to invest in unit trusts often do so for higher potential returns since actively managed funds often contend that they can beat the benchmark.

BUT DO THEY???

The JSE Top 40 performance below:

Unit trusts are more expensive & based on the numbers they may beat inflation, but they do not beat the index

Yes, this is just an example & you might find an amazing unit trust you are will to fund a yacht for the fund manager for

Good luck good people. I am sticking to ETFs