A Short Guide To Unit Trusts

By Author: Lecia Selbo
Total Articles: 49
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A company known as M and G way back in 1931 launched the very first unit trust. Since then, the unit trust industry has grown and grown, to the extent that it is now responsible for managing over three trillion pounds worth of investment capital worldwide.

A unit trust operates much like an investment club. Basically, you pool your money with a lot of other investors, and a fund manager invests the whole lot in the stock market. The value of the individual investments in the fund, known as units, goes up and down in accordance with the overall value of the fund.

You invest in a unit trust by purchasing units. More units can be made available as the size of the fund grows. If the value of the shares that the fund invests in goes up, so does the market value of the units.

Unit trusts are a popular investment vehicle for private individuals, as they allow you to gain access to a much wider range of shares than would be available to you if you were trading on your own. Also, the potential for loss making is far less than with individual shares, as the risk is spread across a whole portfolio of shares.

There ...
... are lots of different types of unit trust that specialise in different types of investment. Certain types of unit trust, such as those that invest in emerging markets, have a higher risk factor and potential for profit attached to them, and some invest in more stable, low risk stocks and shares.

When purchasing units in a unit trust, you have to pay an initial fee of around five percent of the total that you are investing, and annual management charges that vary depending on the type of fund it is, and how much the fund managers have to do.

The annual management fees vary from unit trust to unit trust, depending on their risk factor. Those that invest in stable, low risk areas tend to have a lower maintenance cost, such as the index tracker fund type. Higher risk unit trusts will have higher annual management fees as a result.

You can buy units in unit trusts directly from a fund management house, through an Independent Financial Adviser, an online fund supermarket, or through a broker such as Legal and General. Generally, you will get a better deal if you buy through a middle man than if you go direct to the fund manager. Lecia Selbo has had a unit trust with Legal