Unit trusts vs ETFs in South Africa
Unit trusts and exchange-traded funds (ETFs) do the same basic job: they pool your money with other investors and buy a spread of assets, so you own a slice of a diversified portfolio. How you buy them, and what they cost, is where they part ways.
In one table
| Unit trust | ETF | |
|---|---|---|
| How it trades | Priced once a day at the fund's net asset value | Trades on the JSE through the day, like a share |
| Usually | Active or passive | Passive, tracking an index |
| Typical cost (TER) | Higher, especially for active funds | Lower |
| How you buy | Direct debit order via the manager or a platform | Through a stockbroker or investment platform |
| Extra trading costs | Usually none per buy | Brokerage and a bid-offer spread each trade |
Cost is the big one
ETFs are usually cheaper because most of them simply track an index rather than paying a team to pick shares. Over decades, that fee gap compounds into real money. The total expense ratio (TER) is where you see it, so compare like-for-like funds on their TER before anything else.
One catch: ETFs carry a small brokerage fee and spread on every trade. If you're investing R500 a month, those per-trade costs can outweigh the lower TER. Some platforms bundle or waive ETF brokerage, which changes the maths, so check your platform's fees.
How you actually buy them matters
A unit trust is built for a debit order. You set R1,000 a month and it buys automatically, no broker account needed. An ETF needs a brokerage or platform account, though plenty of South African platforms now let you run a monthly ETF debit order too. If you want the simplest possible "set and forget", a unit trust or a platform that automates ETF buys both work.
Tax is the same
Outside a tax-free account, both are taxed the same way: capital gains tax when you sell at a profit, dividends tax on distributions, and income tax on any interest. Hold either one inside a tax-free savings account and all of that falls away, within the annual and lifetime limits.
Which should you use?
- Want low-cost index exposure and you're comfortable with a platform? An ETF is usually the cheaper route.
- Want a simple monthly debit order without a brokerage account, or a specific actively-managed strategy? A unit trust fits.
- Investing small monthly amounts? Weigh the ETF's per-trade costs against its lower TER.
Related guides
- What is a TER?: how to read the fee that separates most unit trusts from most ETFs.
- TFSA contribution limits: the tax-free wrapper you can hold either one in.