Unit trusts are collective investments. When you invest in one, your money will be pooled together with others to buy shares and other assets.
How does it work?
A unit trust is a fund that is divided up into segments called ‘units’. You, along with all the other investors, will be allocated units. As more people invest the number of units increase, and as they leave the number decreases. It is called an ‘open-ended” investment, because it can fluctuate in size.Who looks after your investment?
An authorised fund management group, who employ a team of fund managers, manages it. They are tasked with choosing how to invest the trust’s money. Each unit trust will have an investment objective that the fund manager will focus on.What are the risks v returns
The value of the units is directly related to the value of the investments the fund has purchased, so can rise and fall in price; it is not affected by supply and demand. The risks will differ between funds. Unit trusts invested in bonds tend to be safer than funds investing in shares, but the returns can be less. Because the values fluctuate, you should consider a unit trust to be a medium to long-term investment. Realistically, be prepared to keep the units for at least three to five years.What are the costs?
When investing in a unit trust, there are two main charges made for managing your fund:- An initial charge, also known as a bid-offer spread or front end charge. At any one time there are two prices that apply, a price that units are bought at, and a lower price that units are sold at.
- An annual management charge. Usually a percentage of the fund amount, the fund manager will take this charge directly out of the fund every year.
