An emergency reserve, next year’s education fees and retirement savings all represent money put aside for the future. But they serve different purposes, and treating them as interchangeable can lead to unsuitable investment choices.
The same applies to collective investments. They offer access to professionally managed portfolios, but the label alone says little about the risks involved, the costs incurred or how long an investor should remain invested.
According to the Association for Savings and Investment South Africa (ASISA), the local collective investment schemes (CIS) industry ended June 2026 with R4.6 trillion in assets under management. Investors could choose from 1 945 local portfolios offered by management companies reporting to ASISA.
Those figures establish the industry’s scale. They do not establish which fund belongs in someone’s savings plan.
Even investment flows need interpretation. Of the R63.6 billion in second-quarter net inflows, R30.4 billion came from new investments and R33.2 billion from reinvested dividends and interest. Net inflows measure the balance after withdrawals, and industry totals include institutional and retail investors. They should not be read as fresh household savings alone.
For the individual investor, understanding what sits behind a fund’s label is a more useful starting point than following where money appears to be going.
Understanding what you own
Collective investments pool money from many investors into portfolios managed on their behalf. A unit trust gives each investor a proportional interest in the portfolio, with its value linked to the underlying assets.
Pooling provides access to professional management without requiring investors to assemble individual holdings themselves. What they receive, however, depends on the portfolio’s mandate.
An equity fund investing in shares and a money market fund holding short-term instruments serve different purposes. Their potential returns, losses and appropriate holding periods differ. CIS describes the investment structure, rather than a single level of risk.
Multi-asset portfolios combine different investments in one fund. In ASISA’s release, Sunette Mulder, its chief of staff, describes South African multi-asset portfolios as “firm investor favourites”. Their mix aims to moderate market fluctuations, although diversification does not eliminate losses.
CIS operate under the Collective Investment Schemes Control Act and Financial Sector Conduct Authority oversight. Disclosure requirements help investors understand funds and make informed decisions. These safeguards do not guarantee capital or investment returns.
Choosing a regulated investment is therefore only part of the decision. The next question is whether its holdings suit the purpose of the money.
When stability is the priority
For money that may be needed soon, fluctuations in value can create an immediate problem. A withdrawal cannot always wait for markets to recover.
Money market funds offer relatively stable values and access to short-term interest-bearing investments. That gives them a different role from funds intended to build wealth over many years.
Stability is not a capital guarantee, however. Nor does a steadily growing balance necessarily mean purchasing power is increasing. If inflation exceeds the return retained after costs and applicable tax, the money buys less despite earning a positive return.
Income funds also require closer inspection. Their holdings can include bonds and other debt instruments with different repayment periods and credit risks. Seeking a higher yield can introduce additional risks; an income fund should not automatically be treated as interchangeable with a money market fund.
The practical distinction is between money that must be available for a near-term expense and money that has time to withstand market fluctuations. One fund need not fulfil both roles.
Choosing how the money is managed
Once the investment’s purpose is clear, investors can assess how a manager proposes to achieve it.
An active manager selects investments in pursuit of the fund’s objective. This creates the possibility of outperforming a benchmark, alongside the risk of underperformance.
An index fund follows rules designed to track a specified index. Its appeal generally includes lower costs, although investors still bear the risks of the market being tracked.
The choice of index matters. A portfolio concentrated in a few large companies or one sector can behave differently from a broadly spread fund. “Passive” describes the management approach; investors still need to understand the holdings.
Comparisons should reflect similar objectives and risks. A concentrated equity fund’s return cannot usefully be judged against a cautious income portfolio’s return without recognising what each investor risked to achieve it.
The relevant question is what the approach offers for the investor’s needs, at what cost.
Making the full cost visible
The annual management fee is only part of the bill. A fund’s total expense ratio expresses its operating expenses as an annual percentage of average assets. These can include investment management, administration, trustee/custodian and audit fees, and performance fees where applicable.
A ratio of 1% represents roughly R10 in annual expenses for every R1 000 invested, assuming a constant investment value. Costs deducted within the fund reduce returns whether investments gain or lose value. They also leave less money invested to grow.
Transaction costs, such as brokerage, are disclosed separately. Together with operating expenses, they make up the fund’s total investment charges. Platform or adviser charges may sit outside these measures.
ASISA’s Effective Annual Cost measure provides a broader breakdown across investment management, advice, administration and other charges over specified holding periods.
Lower costs do not automatically identify the better investment. But investors need to understand the full bill before judging whether the service and investment approach justify it.
Looking beyond the rand
Costs are one consideration; geographical and currency exposure are another.
ASISA reports that foreign portfolios registered for marketing in South Africa reached R1.2 trillion in assets under management at the end of June 2026, despite recording second-quarter net outflows of R5.59 billion. Asset values and money flows measure different things: market performance and currency movements can change the former without investors adding money.
These foreign currency-denominated portfolios are also distinct from rand-denominated funds that invest offshore. A statement in rands does not necessarily mean the underlying investments are South African.
Offshore investing provides access to other businesses and economies, while currency movements affect returns measured in rands. The appropriate exposure depends on existing holdings and future spending needs, alongside the investments themselves.
Measuring a useful outcome
These decisions return to the same starting point: how much money is needed, when it will be spent and how much uncertainty the investor can afford.
A fund factsheet, often called a minimum disclosure document, explains objectives, holdings, risks, costs and performance. Its benchmark deserves attention too. Beating a market index and beating inflation are different objectives; a fund can outperform its benchmark while still losing money.
Reviews should assess progress towards the goal alongside returns after costs and inflation. Contributions and withdrawals matter: even strong investment performance may leave someone short if too little has been saved.
Industry growth and performance rankings provide information. The more consequential test is whether the investment is meeting its owner’s needs.
Preparing for uncertainty, rather than predicting it
A conflict far from South Africa can affect the price of oil, inflation expectations and the outlook for interest rates. For investors, those connections make it difficult to assess any investment in isolation. The same event can reshape prospects for companies, bonds and currencies, with consequences across a portfolio.
That is the practical case for diversification: savings should not depend entirely on one market, asset class or economic outcome. Balanced funds put this principle to work by combining local and global shares, property, bonds and cash in a single portfolio.
The challenge is deciding how those investments should fit together as conditions change.
For Justin Floor, Head of Equities at PSG Asset Management, the answer begins with acknowledging what fund managers cannot know.
“It’s better to prepare than to predict,” he says.
Floor compares portfolio construction to engineering a bridge. Its strength is tested when storms arrive, so the design must anticipate different stresses. Similarly, his team tests portfolios against a range of scenarios rather than relying on correctly forecasting the next disruption.
Different tools for changing conditions
Changing interest-rate cycles illustrate why that flexibility matters. Higher rates can improve the income available from cash and newly issued bonds, while increasing borrowing costs for companies. Falling rates alter those trade-offs again. The implications depend on the investment and the price paid for it.
Performance is also uneven across markets and asset classes. Diversification gives a manager different sources of returns to draw on, although it cannot ensure that one holding will always offset losses elsewhere.
For investors, a balanced fund delegates the task of assessing these shifting opportunities to a professional team. They do not have to decide for themselves when to reduce shares or switch into bonds.
At PSG Asset Management, those decisions start with individual investment ideas.
“In many ways, the asset allocation is actually an output,” Floor explains. “It’s the result of our best ideas coming together.”
The team searches globally, treating South Africa as part of the same investment landscape. It looks for investments whose prospects are stronger than their prices suggest, then assesses how they contribute to the portfolio’s overall risks and potential returns. This approach sets PSG Asset Management apart from many other managers, who divide balanced funds into the underlying asset class building blocks and then manage each in isolation. Managing portfolios on a holistic basis offers advantages, however, as hidden relationships between assets can be viewed at an overall portfolio level.
For a price-sensitive, bottom-up manager, uncertainty can create opportunity. A good company experiencing disappointing results may become attractively priced if investors overlook its longer-term potential. Detailed research and rigorous debate are essential to testing that judgment.
Resilience still requires patience
For investors, however, a diversified portfolio is only part of the preparation. Their expectations and timeframe also need to accommodate difficult markets.
Balanced funds with substantial share exposure can lose value when equities fall. Access to different asset classes gives managers more options, but does not remove market risk or guarantee capital protection.
Floor advocates an investment horizon of at least five years, preferably longer. Money needed within two or three years calls for a more cautious approach.
Understanding the manager’s philosophy can help investors maintain perspective when performance disappoints.
“The biggest mistake I’ve seen people make is they panic after a bit of a drawdown and they take their money out and often it’s close to the bottom,” says Floor.
The preparation principle applies on both sides: managers build portfolios for different outcomes, while investors give a suitable strategy time to work.