TFSA vs unit trusts vs ETFs — how do the wrappers differ?
They're not three versions of the same thing. A unit trust and an ETF are vehicles — actual investments that hold shares, bonds or property. A TFSA is a wrapper — a tax status placed around whatever sits inside it.
So the real question is never "TFSA or ETF?" An ETF can live inside a TFSA (its dividends, interest and growth then untaxed) or outside one (taxed normally). The wrapper and the vehicle are chosen separately.
Wrappers vs vehicles
Think of the vehicle as the contents and the wrapper as the box. Unit trusts and ETFs are contents: pooled funds that own underlying assets. A TFSA is a box: it holds contents — often those very same funds — and changes only one thing about them: how SARS treats the money they make. Comparing "TFSA vs ETF" is comparing a box to its contents.
How the two vehicles trade
- Unit trust: priced once a day at the value of everything the fund holds (its NAV). Buy or sell orders all settle at that single daily price, through the manager or a platform
- ETF: listed on the stock exchange and traded like a share — the price moves all day, and buying means placing an order through a broker while the market is open
What they typically cost
Index-tracking ETFs are generally cheaper to run than actively managed unit trusts — tracking a list is less labour than trying to beat it, and the total expense ratio usually reflects that. The gap looks small in any one year and is anything but over decades: "What do investment fees really cost over 20 or 30 years?" works the compounding out.
Tax outside a wrapper
Held in an ordinary account, a fund's returns are taxed three ways: dividends carry a 20% dividends tax, interest is taxable above an annual exemption, and selling at a profit triggers capital gains tax. "How are investments taxed — dividends, interest, REITs?" walks through each one.
Tax inside a TFSA
Nothing. No dividends tax, no tax on interest, no capital gains tax — ever, including on withdrawal. The trade is capacity: contributions are capped at R46,000 per tax year and R500,000 over a lifetime, and paying money in above those caps carries a steep penalty. "TFSA rules — the limits, and the 40% over-contribution penalty" covers the fine print.
Put together: the same ETF, bought inside and outside a TFSA, is the same investment with two entirely different tax outcomes. The vehicle decides what you own; the wrapper decides what SARS takes.
Terms used on this page
- unit trust
- A pooled fund divided into units. Investors buy and sell units at one price set daily, based on the value of everything the fund holds.
- ETF (exchange-traded fund)
- A fund listed on a stock exchange and traded like a share, usually tracking an index. Its price moves throughout the trading day.
- TER (total expense ratio)
- The yearly running cost of a fund — management and operating costs — shown as a percentage of your investment on the fund’s fact sheet.
Reviewed July 2026 · 2026/27 tax year figures