Unit Trusts vs. Bonds: Which Investment is Right for You?
Part 14/15: A Beginner’s Guide to Investing in Treasury Bonds & Bills
Unit Trusts vs. Bonds: What’s the Difference?
When investing, you’ll often hear about unit trusts and government bonds as two popular options. But what’s the difference, and which one is right for you? Both are low-risk investments, but they work in very different ways.
Here’s a simple breakdown to help you decide.
How They Work
Unit Trusts – A unit trust is a pooled investment fund managed by professionals. Your money is combined with other investors’ funds and invested in assets like stocks, bonds, and fixed deposits.
Bonds – A bond is a loan you give to the government (or a company). The government pays you interest (coupon payments) every six months and returns your money when the bond matures.
Key Difference: Unit trusts invest in multiple assets, while bonds are a direct investment in government debt.
Risk & Return
Unit Trusts
Offer diversification—if one asset underperforms, others may balance it out.
Returns depend on market performance (stocks, bonds, and cash holdings).
Risk varies based on the type of unit trust (money market funds are low-risk, while equity funds are higher-risk).
Bonds
Provide fixed, predictable returns (coupon payments).
Lower risk—government bonds are among the safest investments.
You know exactly what you’ll earn before investing.
Key Difference: Unit trusts have variable returns, while bonds provide fixed returns.
Liquidity (How Easy It Is to Sell)
Unit Trusts – Easy to cash out! You can withdraw your money anytime, but returns depend on market performance.
Bonds – You must wait until maturity (unless you sell in the secondary market or OTC market, which may take time).
Example:
A unit trust investor can redeem funds in days.
A bond investor must either hold until maturity or sell in the secondary market, which depends on demand.
Key Difference: Unit trusts are more liquid than bonds.
Minimum Investment
Unit Trusts – Typically UGX 100,000 or less in Uganda, making it an easy entry point for new investors.
Bonds – The minimum investment is UGX 100,000, but many investors start with millions for better returns.
Key Difference: Both have a low minimum investment, but unit trusts allow smaller, more flexible contributions.
Who Should Invest in What?
Choose Unit Trusts if:
You want diversified exposure to different asset classes.
You prefer liquidity and the ability to withdraw funds at any time.
You don’t have time to research individual bonds or stocks.
Choose Bonds if:
You want stable, predictable income with minimal risk.
You’re willing to hold your investment long-term.
You want to lock in fixed returns, independent of market swings.
This is part of the series A Beginner’s Guide to Investing in Treasury Bills and Bonds.
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