Unit Trusts Explained

By Author: Lecia Selbo
Total Articles: 49
Comment this article

One of the most popular types of investment for private individuals is known as a unit trust. These are communal, bulk investments in the stock market administered by a fund manager on behalf of several different investors, each of whom owns part of the trust in the form of individual units.

A unit trust is usually associated with a certain strategy that the fund manager will pursue with the fund. You can get trusts that invest mainly in high risk investments with high potential returns, or trusts that mainly stick with safe bets such as shares in blue chip companies.

The number of total units in the fund is not fixed, and rises and falls as units are bought and sold by investors. The value of the unit trusts, which you buy or sell through the fund manager, changes in line with the total value of the fund, which is directly influenced by the movements of the individual shares within the fund.

As an investor, you would hope for your units to increase in value over time, but this is not always the case, as they are dependent on the movements of the stock market. You would also be in line to receive your share ...
... of any dividends and interest payments from the investments in your unit trust.

Unit trusts and other pooled investments allow private investors to take advantage of the skills and expertise of a top fund manager, rather than having to trust their own judgement in the stock market.

Pooled investments allow you to spread the risk of investing in the stock market across a whole portfolio of shares, with a much smaller investment than you would require if you were dealing directly in the stock market.

Dealing in shares involves having to pay share dealing fees. If you were to make small investments in several different shares, these dealing fees would cut into your profits. By purchasing a small percentage of shares bought in bulk, you reduce your overall share dealing bill.

Perhaps the main reason for the popularity of unit trusts is that most people do not have the time to trade shares, collect dividends, and keep an eye on the movements of the stock market. They allow investors to reap the benefits of investing in the stock market without requiring a huge effort on their part. Lecia Selbo has had a unit trust with Legal