What’s the difference between an ETF and a unit trust?

By Lizelle Steyn

Updated 17 October 2026

difference between an ETF and unit trust

Unit trusts have been around since the 1930s internationally and ETFs only since the 90s, but both are tools to allow retail investors to buy a "slice" of a large investment fund alongside many other investors. And they're very well regulated to protect us as investors. Even if the fund manager gets liquidated, your investment continues. Essentially, a unit trust is a fund divided into units. An ETF is a fund divided into shares, which trade on a stock exchange.

Myth #1: An ETF is passive and a unit trust is active

Twenty years ago, when very few index tracking (passive) unit trusts existed in South Africa, this distinction would have been true. Now there’s a whole range of unit trusts tracking different indices or a combination of indices at a low cost. Also, in 2022 actively managed ETFs were introduced and their numbers are steadily growing.

Myth #2: An ETF is - always - cheaper than a unit trust

This is only true at a fund level. If you compare an ETF and a unit trust tracking the same index, eg the MSCI World, the total investment cost should be lower for the ETF. Satrix is a good example here because they offer both an ETF and a unit trust to track the MSCI World index. If you download the MDD (fact sheet) for both products, you’ll see the total investment cost (TIC) at a fund level was:

0.32% for the ETF vs
0.71% for the unit trust at the end of August 2026.

That’s unfortunately not where the costs end. We also need to consider what happens at the platform trading level. In other words, what are the costs when buying and selling the fund:

With a unit trust, you don’t need a stock broker and you can bypass a platform, buying directly from the unit trust management company.
With an ETF, you need to pay additional brokerage/transaction costs plus you have to consider the size of the bid/offer (buy/sell) spread (a ‘hidden’ cost which could be substantial). Depending on who you use, your total cost for the ETF could work out much more than what you see on the fund fact sheet.

The figure that includes all fund fees and the cost of buing and selling your investment is called the EAC (effective annual cost). The EAC is constant for a unit trust, irrespective of investment term or amount invested. That’s because – unlike with an ETF - there’s no per-transaction fee. With an ETF the EAC would vary depending on:

how long you stay invested
how much you invest, and
whether it’s a lump sum or monthly investment

Yes, when investing a lump sum and then holding the ETF for many years before selling it, the ETF is generally cheaper.

What are the other main differences then between an ETF and a unit trust?

Table: ETF vs unit trust

	ETF	Unit trust
You buy	Shares in a portfolio/fund	Units in a portfolio/fund
Most important laws applicable	Collective Investment Schemes Act (unless it's a commodity ETF); Companies Act; various tax laws	Collective Investment Schemes Act; various tax laws
Managed by	ETF provider	Unit trust management company (manco)
Accessed via platform or broker	Compulsory	Optional – can buy directly from manco
Pricing	Changes throughout the day – can vary significantly depending on time of day bought or sold, providing opportunity to ‘time the market’ for frequently traded ETFs	Priced only once a day – buyer/seller doesn’t know price beforehand
Bid-offer/buy-sell spread (extra cost to investor)	Can be large for illiquid (less frequently traded) ETFs	None
Liquidity	Liquidity (how quickly you're able to sell) varies from low to fairly high	Highly liquid
Performance reporting	Profit or loss often not annualised	Annualised returns (easier to compare to a bank account or deposit)
Transparency	Underlying holdings shown daily	Shown quarterly only

Source: gofreedom.co.za

Similarities between an ETF and unit trust

There are also many similarities between an ETF and a unit trust:

As mentioned before, they both exist to make it easy for retail investors to pool small amounts of money together to be able to buy sometimes large and expensive stocks, like Apple and Naspers.
They’re both heavily regulated to protect retail investors’ money.
Both can easily be bought online nowadays.
The tax treatment is almost identical.
Both give investors the option to choose whether they want to receive income – like dividends and interest paid out by the fund – in their bank accounts or whether they want it all to be reinvested in the fund. (There are a few specific ETFs and unit trusts – mostly ones that invest offshore - which are the exception and will only reinvest income.)
With the exception of unit trusts that charge performance fees and ETFs that track commodities, both can be wrapped in a tax-free savings account (TFSA).
Both can be wrapped in an RA as long as your choice of fund complies with Reg 28.

More about the cost difference between an ETF and a unit trust

In the end the only cost that matters is the effective annual cost (EAC) – the true total fees and costs an investor is paying on average per year. While the TER, transaction cost and TIC of the fund can be found on the fund’s MDD, to track down the overall cost of the product you’re buying, you need to contact the product provider and request the EAC.

How the EAC and other fees/costs fit together: