What is a unit trust?
A unit trust is a type of mutual fund where money from many investors (called “unit holders”), is managed by a fund manager to achieve a specific return. This fund manager then creates a portfolio of investments and assets.
With a unit trust, the fund manager invests in bonds or shares of businesses on the stock market. The fund is then split into units, which is what you buy when you invest in a unit fund.
Unit trusts are one of the most popular forms of investment funds. They are generally used by investors who want to buy shares and other assets across a mixed portfolio but have limited time or expertise to manage such investments.
The value of investments or income from a unit trust may go down as well as up, so you could come out with less money than you put in.
How does a unit trust work?
A unit trust investment follows these general steps:
- Money you invest is pooled together with other investors’ into one fund.
- The fund manager invests this money in different asset classes – to spread and reduce the risk.
- Then the total fund is divided into equal units, which are what investors buy.
- You hold this unit(s) and hope to make money as the value of its assets rise in value over time.
- Exit the fund by selling your units at the bid price – to profit this needs to be higher than the offer price you initially paid for the unit(s).
What are the advantages and disadvantages of unit trusts?
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