Once you've decided to invest in the share market, you face a fork in the road. You can buy shares directly — choosing companies yourself through your CDS account — or you can invest in a unit trust, where a professional manager does the choosing for you. Both are legitimate. The right one depends entirely on your time, temperament, and how much you want to learn.
What's a unit trust? It's a pool of money from many small investors, managed by professionals who invest it across a spread of shares (and sometimes bonds). You buy "units" of the fund, and your money is instantly diversified across everything the fund holds. In Sri Lanka these are offered by licensed unit trust management companies.
Buying shares directly
This is the hands-on path: you research companies, decide what to buy, and place the orders yourself.
The upside:
- Full control — you own exactly the companies you choose.
- No management fee — you only pay trading costs, not an ongoing charge to a manager.
- You learn — the understanding you build is a skill that compounds for life.
- Potential for higher returns — if you pick well (a real "if").
The downside:
- It takes time and effort — research, monitoring, and decisions are all on you.
- It takes temperament — you must hold your nerve when prices fall.
- Diversification is your job — putting everything in one or two stocks is a beginner's classic, costly mistake.
Investing through a unit trust
Here, you hand the work to professionals and buy into their fund.
The upside:
- Instant diversification — even a small investment is spread across many holdings, reducing single-stock risk.
- Professional management — experienced people research and decide full-time.
- Low effort — ideal if you don't have the time or desire to manage stocks yourself.
- Accessible — you can often start with a modest amount, with no per-trade minimum to worry about.
The downside:
- A management fee — you pay an annual charge for the expertise, which eats into returns over time.
- Less control — you don't choose the individual holdings.
- Returns vary by fund — a manager can underperform; you're trusting their skill.
Direct shares ask for your time and nerve and reward you with control. A unit trust asks for a fee and rewards you with convenience and instant diversification.
Which one fits you?
Be honest about yourself rather than aspirational. Consider:
Choosing your path
- Choose direct shares if you enjoy research, want to learn, have time to monitor, and can stay calm when prices drop.
- Choose a unit trust if you're busy, want instant diversification, prefer a professional at the wheel, or are starting with a small amount.
- You don't have to choose only one — many investors do both: a core in a unit trust for diversification, plus a few direct stocks they've researched and believe in.
A note for absolute beginners
If you're just starting and unsure of everything, a unit trust is a genuinely sensible on-ramp. It gets your money working and diversified while you learn — and you can always start buying individual shares later, once you've built the knowledge and confidence. There's no rule that says you must pick stocks to be a "real" investor. The goal is to invest sensibly, not to prove anything.
The bottom line
This isn't a contest with a single winner. Direct shares suit the curious, the patient, and the time-rich. Unit trusts suit the busy, the cautious, and those who value diversification over control. Many people, sensibly, use both. Match the choice to your real life — not to who you wish you were — and you'll stick with it, which matters more than any clever pick.