What are Unit Trusts?

Unit Trusts are a form of Collective Investment and can be either domestic or off shore. The trust can be set up to invest in a wide range of investments that might not be accessible to smaller investors. Unit trusts are open ended vehicles meaning that new units can be issued at any time and that the value of the assets is represented by the number of units x unit price less any management fees (in the region of 1-2% per annum). Units are created and cancelled depending on whether money is being invested or removed from the trust. This price will not necessarily be the same because the trust manager will make a slight profit from the bid-offer spread (usually in the region of 5%). In the UK many Unit Trusts have been converted into Open Ended Investment Companies (OEICs), which have a single price for purchase and sale.

Top Tips:

  1. Check if there are any tax incentives from investing in the Unit Trust of interest and what tax implications there are if you invest off shore.
  2. Make sure that you understand the charges and when they are applied.
  3. Check on the liquidity of your investment and how quickly you are able to exit if need be and the cost of early exit.
  4. Unit trusts can be purchased direct through IFA’s or stockbrokers use the one best suited for your needs.
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