There is no denying the sharp upward trend in unit trust sales. At the end of March 2007, the total value of the industry touched R600m - similar in size to the private-sector self-administered retirement fund industry, making it about 60% of the size of the life industry.

Somewhat alarmingly for a public that has been brought up on the view that the role of unit trusts is to make investment easy, there are now 765 unit trusts in SA, substantially more than the total number of shares on the JSE.

But unit trusts have evolved from their original role as pure equity vehicles. Equity funds now account for just 31% of industry assets.

Not so long ago, the regulator was reluctant to allow any company to have more than two or three funds, and they were always confined to one asset class, usually equity or bonds. The unit trust industry was historically dominated by the large life assurers and banking groups. Now the most successful acquirer of assets is the independent asset manager Allan Gray. It is one of the few managers that attracts significant flows into its general equity fund, but it has attracted most of its money into its multi-asset class funds, the Balanced and Stable funds.

Few of the funds launched recently have been equity funds. Multi-asset funds, which provide a one-stop solution to each person's asset allocation needs, account for most fund launches. Many of these now target a specific rate of inflation - perhaps more appropriate to many investors than an equity fund, which will lose money in a bear market however skilled the manager may be. In almost all cases, funds are aimed at the lump sum rather than the debit order or recurring premium market.

"We all like the romantic notion of making investing easy for the common man," says Pieter Koekemoer, chairman of the Association of Collective Investments, "but in reality we have been much better at collecting lump sums from the affluent, and we have also expanded the public which we serve: much of the inflow into our money market funds, for example, is provided by corporates."

The inflows into unit trusts are controlled largely by financial advisers and brokers. Especially since the introduction of the Financial Advisory & Intermediary Services Act, they have been reluctant to invest client money aggressively.

Kim Zietsman, head of Stanlib unit trusts, says risk-profiled funds were introduced in order to help brokers match a portfolio to their clients' risk profile, and the conservative and moderately conservative options have been far more popular than the aggressive and assertive versions.

"In view of the recent bull market this is a little puzzling," she says. But it is in line with industry experience. There were net disinvestments of R6,4bn from equity funds and no interest in high equity funds, which have seen R4m of net withdrawals over the past 12 months.

In contrast, there has been a huge R9,7bn inflow into low equity funds (with Allan Gray Stable capturing three quarters of this) and R14,2bn into medium equity funds, which mimic the asset allocation of a typical pension fund.

There is no evidence for the widely held view that investors chase past performance - if that were so there would not have been a nominal R30m into resources funds over the past 12 months and R7,8bn into targeted absolute and real return funds, which target inflation and have barely participated in the bull market.

The one area in which there has been a measure of faddishness has been property - the sector in which retail flows have influenced share prices. With R18,7bn in real estate unit trusts, unit trust investors account for about 20% of the market capitalisation of the sector.

But investors did not appreciate the potential for capital loss in property, which was treated as an alternative to fixed interest investments. But they also have much of the volatility of equities.

When the property index fell by more than 20% in May 2006 some investors panicked - and did not participate in the subsequent recovery of the sector. In the past 12 months there were outflows of R2,39bn, mainly people who should not have been in real estate funds in the first place.

Unit trusts owe much of their growth to the broadening of their target market: the vehicle has advantages that have made some institutions and private client managers switch from segregated portfolios. The introduction of capital gains tax (CGT) in October 2001 was a boost as trading within unit trusts is exempt from CGT, which is only payable when unit holders sell their holdings.

As a result, many private client managers encouraged clients to move to pooled portfolios.

For many pension funds it is also more convenient to hold their assets in unit trusts, which are controlled by independent trustees, rather than place them on a life licence or leave them naked and relatively unprotected in segregated portfolios

As a result many private client managers encouraged clients to move to pooled portfolios.

"I am glad that investors have lost their snobbishness about collectives," says Investec Asset Management CEO Hendrik du Toit, "they are extremely good for small and large investors."

Unit trusts are certainly preferred by the authorities and regulators over life products. Karin McKenzie, an assistant pension funds adjudicator wrote a paper which showed that unit trust-based retirement annuities offer better value for money than life insurance based RAs.

In the pension fund reform process, national treasury has suggested a new class of investment-only retirement savings vehicles be created, for which unit trusts are ideally suited. This will finally provide the opportunity for the unit trust industry to return to its roots in the regular savings market. In this market its ability to contain costs will be critical, particularly if market returns decline.

The introduction of the total expense ratio (TER) will make unit trust costs a lot more transparent to clients. Management fees have always been disclosed but investors had to look for costs such as audit fees and custodian fees in the funds' annual reports. These costs and many others will now be rolled into the TER.

ACI CE Di Turpin says that the TER is a standardised, compulsory industry-wide initiative with all ongoing costs of using the unit trust vehicle included. The industry has decided to exclude trading costs to allow for international comparability, as other jurisdictions do not include brokerage.

The disadvantage of the TER is that it is a historic measure and is not always indicative of future costs. It also excludes upfront fees, bank charges, the cost of other product layers such as linked product companies as well as exit costs - which are not common here but which could be introduced as a disincentive to constantly switch funds.

The big advantage will be more explicit disclosure of performance fees as well as layered fees - investors will be able to see the full charge levied by a fund of funds on a see-through basis (which includes the underlying fund charges.)

It is expected that many people will be unhappy to see the TERs disclosed by certain broker funds and many will ask if it was in their best interests to be moved from a standard industry fund to a broker fund. There is also pressure for broker funds to be included in the unit trust performance league tables - many have given mediocre performance and charged high fees into the bargain.