What is a unit trust?
A unit trust is a way by which private investors can make stock market investments with the help of a fund manager, who is generally something an expert in the field of investments. These unit trusts can be bought via a lump sum payment, which could be from around £500 upwards, or via monthly savings of around £30 or more each month. A unit trust is one of the simplest ways for investors to start dabbling on the stock market, and this method aims to speed up the growth of your investment.
You can buy unit trusts from a variety of sources, and these include: stockbrokers, independent financial advisors, and investment management groups. The fund manager decides upon the investments for which the money will be used, and it is invested in a range of companies, which reduces the risk of putting all the eggs into one basket, as it were.
The financial rewards of such an investment has far better potential than any interest gains made through a savings account, but it is also important to remember that – as with all investments – there is a certain degree of risk involved. You will pay charged on unit trusts, and these can vary. You will generally pay upwards of five percent to start with, and then you have to pay management fees on an annual basis. You may find some unit trust facilities that charge no initial fees, but recoup the costs through increased annual management fees. The investments made with unit trusts include equities, gilts, commodities, and commercial properties.
A unit trust is classed as a collective investment, and this is because the money from al of the investors is pooled together and then invested in a portfolio of companies and other investments. There are over seventeen hundred unit trusts in the UK, giving investors an increased choice when it comes to investing their money. The risks involved with unit trusts can vary depending on the type of investments made through the fund. You should look into and consider these investments carefully before you make a decision, and you must consider just how much of a risk you can afford to take.
Unit trusts, unlike investment trusts, are open ended, which means that the number of shares in issue can vary on a daily basis. When looking into investing through unit trusts you should ensure that you take into account the past performance of the fund, as this will give you an indication of future performance, although it is obviously no guarantee of good future performance. This will enable you to make a more informed decision about the unit trust in which you wish to invest, based on a consistently good or excellent performance for a number of consecutive years