Are funds out of fashion? Should you invest directly in the market?

If you are part of South Africa’s newest wave of investors you don’t want to queue at a bank branch for unit trust forms. You want to sit on your morning commute, trading from your smartphone while listening to a podcast about exchange traded funds (ETF). Your energy is different. Traditional unit trust funds don’t shine because trading shares, ETFs and even cryptocurrencies online is easier.

David Oberholzer, head of EasyETFs at Purple Group, describes the trend among younger generations as explosive. “This is a global shift. Tech-enabled investors of all ages are gravitating toward listed instruments on modern trading apps rather than paper-based platforms,” he says.

The reason is simple. As a young investor, you want to build wealth the same way you order food, book holidays, or pay for electricity - instant, low-cost and simple. In that world, unit trusts, with their cut-off times and next-day pricing, feel like a landline in an age of smartphones.

“With ETFs, you can react instantly. Buy or sell in seconds. Unit trusts still operate on next-day net asset value (NAV) in finance pricing and multi-day settlement. The market is choosing simplicity,” Oberholzer says.

Trading vs investing: are young people confused?

Older generations often worry that younger investors are gambling on meme stocks or chasing TikTok trading gurus. Oberholzer doesn’t buy it. “Most young investors understand the difference between trading and investing,” he says, crediting YouTube channels, online courses, free educational tools and AI for improving financial literacy.

The real trap lies elsewhere. “Get-rich-quick schemes masquerading as investing are the danger,” Oberholzer warns. These schemes promise overnight profits but gloss over the fine print and the risks of leveraged positions. Forex academies and some contract for difference platforms are particularly guilty, according to Oberholzer. Read more: Don’t believe FX trading sites’ get-rich-quick hype

And market analyst Simon Brown, founder of Just One Lap, also wants to caution newer investors: “Many younger investors still blur long-term investing and short-term trading. Holding periods for shares have been shrinking for decades, reflecting a tilt toward speculation rather than patience.” He notes that access has exploded, but genuine long-term investing hasn’t always kept pace.

DIY or funds: what’s the real difference?

Buying shares directly isn’t the same as investing through a unit trust fund. Most young investors know ETFs are cheap and passively managed, but fewer realise the JSE now lists actively managed ETFs too, often cheaper than traditional unit trusts.

“ETFs were always low-cost, index-tracking vehicles,” Oberholzer notes. “The exciting change is the growth of actively managed ETFs, opening strategies once reserved for the wealthy.”

Regulation matters. ETFs, active or passive, fall under the JSE’s rules and most are also regulated under the Collective Investment Schemes Control Act, meaning strong oversight and ring-fenced assets. Actively Managed Certificates (AMCs), however, while required to adhere to JSE listing rules, are bank-issued debt instruments, carrying credit risk. Two products may look alike on screen but behave very differently behind the scenes.

Nerina Visser, a director at etfSA, highlights another advantage: “A single ETF, fund, or AMC gives instant diversification across a portfolio, which you can’t achieve by buying individual shares. It’s cost-efficient, lowers minimum investment hurdles, and puts research, risk management, and portfolio construction in professional hands. For new investors, regulated funds remain the smarter starting point.”

Diversification: easier said than done

Many young DIY investors think they’re diversified because they own a handful of popular shares. Oberholzer sees that as “fake diversification” and shares an example: “If 35 percent of your portfolio is concentrated in seven shares, you might think it’s diversified, until you realise those are all tech giants.”

True diversification spans asset classes, from bonds to commodities, and sectors from tech to financial, industrial and resources. Most investors lack the tools or time to build this alone, which keeps funds relevant even in a DIY-friendly world.

Copy trading and influencers: a new minefield

Social media has fuelled the rise of trading influencers posting eye-catching screenshots and promoting “easy” strategies. Some even offer copy-trading services. Yet the Financial Sector Conduct Authority (FSCA) warns that anyone managing money for others must hold a Financial Advisory and Intermediary Services Category II licence – and many online operators do not.

Visser stresses: “Investors often cannot distinguish between licensed advice or discretionary fund management and finfluencers pushing trading ideas without context. Following finfluencers carries real risk: no protection, no recourse, and no guarantee it suits your risk profile.”

Brown adds: “Some scams are highly sophisticated. People chase quick wins without understanding risk. Even I’ve been spoofed on WhatsApp, yet it drew enough people to trigger an FSCA investigation.” Convenience and excitement can be tempting, but accountability matters.

Direct investing vs funds: convenience factor

Oberholzer points out that direct investing can be faster. Modern platforms show proceeds immediately and allow instant reinvestment. Funds? Slower. NAV pricing is calculated once a day, units confirmed later, leaving investors with limited visibility. “ETFs and shares feel like shopping on Amazon; unit trusts feel like ordering from a slow warehouse,” he says.

Visser adds: “Direct investing is flexible, but not all options are available everywhere. Cryptocurrencies can’t go into regulated funds, and some shares are excluded from tax-free accounts. The best strategy is to combine vehicles, tax-free, retirement annuities and taxable options including shares, funds and crypto, to maximise benefits within the rules.”

Crypto, tax-free accounts and retirement wrappers

Direct investing lets you buy almost anything. Funds are regulated and so too are the products in which you can hold investments. Tax-free accounts can only include CISCA-

compliant products and certain bonds; retirement annuities exclude crypto and must comply with investment guidelines in Regulation 28 of the Pensions Funds Act. Board Notice 90 issued under CISCA prevents collective investments schemes from holding many alternative assets.

A new complexity is emerging. The JSE plans to list crypto ETFs, but these will not be CISCA-compliant. You won’t be able to hold them in a tax-free account, even though they are called ETFs. Oberholzer warns that education will be key: not all ETFs can be included in every wrapper.

What should you do?

The idea that funds are out of fashion is catchy, but incomplete. Direct investing offers freedom, control and excitement. Funds provide structure, diversification and professional oversight. Most South Africans will likely need both at different stages.

The goal is not to choose a side. It’s understanding what each tool does and using them wisely. By combining both approaches, investors can balance convenience, flexibility, and access to a full range of asset classes while staying within regulatory limits.