A unit trust is a type of collective investment scheme that is popular in countries such as the UK, Australia, and South Africa. In some way it is similar to the mutual funds investment that is popular in the US. It is a quite a unique type of investment in other ways though, and anyone who is planning to choose this option might want to investigate carefully. The unit trust was first introduced in the UK back in 1931, and it has become quite popular since that time.
What is a Unit Trust?
A unit trust is a collective open-ended investment. There is always a specific investment objective and it is the job of the trustees to ensure that fund manager is always working towards this goal. The investors in a unit trust will own units and the value of these will be determined by net value of the investments; each unit is of equal value. Unlike some other investments the value of the units in this type of investment are not determined by supply and demand; instead it is determined by how well investments are performing overall. This should mean that the price people get for buying and selling these units is a fair one. For most people the unit trust will be at least a medium term investment for most it will be long term.
The way a unit trust operates is that the fund manager will purchase shares in a variety of different companies. The money for this comes from the price paid for the units; the fact that this is an open ended type of investment means that these units can vary in number. The work of the fund manager is overseen by the trustees to ensure that the goals of the unit holders are being met. The fund manager is an experienced investor who will be able to competently spread the risk of the investment; thus increasing the chance that the unit holder will profit when they come to sell their units. A lot of people choose this type of investment because it involves very little work once you have bought your units. Like all similar investments there is no guarantee that investors will reap high rewards; you will always be taking a risk.
How to Pick a Unit Trust
The fact that there is going to be a risk associated with a unit trust means that people need to select carefully. There are many types of unit trust available in the UK and some perform better than others. It is important to do a bit of research and that way you will be far more likely to find something that will perform well over time. It is important that you understand the strategy for each of the unit trusts and that you select the one that you feel is the most likely to succeed; for example some unit trusts like to invest in big successful companies only while others take more risks.