In Summary
  • You can make your savings work for you by investing in unit trust funds. Jonathan Adengo shares how this investment scheme works.

In Uganda, the financial industry largely shaped by traditional banking, has gone through a number of changes.
With the advent of mobile money in 2009, banks have had to reinvent themselves to be able to tap into the unbanked population and attract people and collective investment clubs to save with them.
Driven by the need to offer tailor-made financial solutions to their clients and meet the growing demand for conservative income solutions in Uganda, many people have now resorted to alternative saving schemes such as trust funds, and Savings and Credit Co-operatives Organisations.

About a unit trust fund
A unit trust fund is a pooled resource, meaning it allows a group of investors to combine their cash and invest it. A fund is a pool of capital belonging to numerous investors used to collectively purchase securities while each investor retains ownership and control of his own shares.

Investment scheme
Unit trust funds are categorised as collective investment schemes under the Capital Markets Authority (CMA). Mr Charles Nsamba, the communication & public relations manager at CMA, says the Unit trust funds are a good way to increase the saving culture with attractive returns for the savings.
“It is also another way for those who cannot access capital markets to take part in trading of shares,” he says. Not many people can access the capital markets because of the large amounts of money needed.
He says this makes unit trusts very useful in helping mobilise savings and collective investments of funds. With the growth of savings clubs and Saccos in Uganda, many of them do not have proper investment options.

Unit trust funds
There are currently three unit trust funds in the country. Currently, Stanlib, Insurance Company of East Africa and UAP Financial Services are the only licensed unit trust funds which fall under the Collective Investment. These unit funds are a good alternative for the public to save and also be able to earn a return on their savings. For instance UAP unit trust fund registered Shs12.2 billion in its fund value for the trading period on 2015.
For instance, one can save as low as Shs100,000 monthly and receive an interest of 9 per cent for their savings.
Through such schemes, the members can also tap in to the capital markets and be able to own shares in Companies, buy and trade shares among others. It also presents a diversified investment portfolio which can easily generate higher return for the members.
Ms Anne Rumanyika, the Stanlib Uganda chief executive, while speaking at the launch of the money market funds says the fund will invest in a range of both government and corporate debt securities, fixed deposit instruments plus cash and near cash holdings in the Ugandan market and East African markets while computing interests daily and distributing on a monthly basis.
The Fund is tailored for investors who require a low-risk income fund with regular income decelerations, seek reasonable levels of current income, maximum stability for capital invested and require a potentially higher yield than money markets over the medium term.

An incentive to save
Rather than take money to the banks, most people would rather buy an Asset and invest their money elsewhere. Some salient insights that leap from the numerous studies and reports published on financial inclusivity indicate that the increased need to see returns from savings has led to creations of unit trusts. For instance, a report on the Inclusive growth and development of Uganda says that Ugandans are about twice more likely to save exclusively with informal institutions than with formal institutions.
At the national level, the report says use of informal institutions increased by 15 per cent points but this was marked by a growing gender and rural-urban divide. The likelihood to save or invest with a formal banking institution increased with educational level and wealth quintile. On the other hand, the youth were more than three times less likely to save or invest with formal banks compared to the middle aged adult population.

Other benefits
Mr Fred Muhumuza, an economist and researcher, says one can only benefit from interest on their bank savings only when the rates are higher than the inflationary rate prevailing at the time. Therefore, schemes like unit trust funds are a good incentive for the public to save and receive returns on their savings.
Finance minister Matia Kasaija, in his speech delivered during the launch of the money market fund, said: “As a government, we have continuously and consistently set out to provide an enabling environment to do business and thrive through these efforts to strengthen financial inclusion in Uganda.”
Since 2001, the share of the adult population having access to formal institutions increased by almost two fold from 28 per cent in 2009 to 54 per cent in 2013.This growth was propelled by an increase in non-bank formal institutions from 20 per cent in 2009 to 52 per cent in 2013.

How unit trust funds work

Unit trusts are professionally managed collective investment funds. Managers pool money from many investors and buy shares, bonds, property or cash assets and other investments.
You buy shares or units. The fund manager puts your money together with money from other investors and uses it to invest in the fund’s underlying assets.
Every fund invests in a different mix of investments. Some only buy shares in companies in the capital markets, while others invest in bonds or other types of investments.
You own a share of the overall unit – if the value of the underlying assets in the fund rises, the value of your units or shares will rise. Similarly, if the value of the assets of the fund falls, the value of your units or shares falls.
The overall fund size will grow and shrink as investors buy or sell. Some funds give you the choice between ‘income units’ or ‘income shares’ that make regular payouts of any dividends or interest the fund earns, or ‘accumulation units’ or ‘accumulation shares’ which are automatically reinvested in the fund.