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Unit Trusts

What is a Unit Trust?

A unit trust is a collective investment vehicle created under trust. The managers pool the contributions of numerous individual investors to create a portfolio of financial securities (a fund) with a given investment objective. It allows an investor to reduce their risk exposure by pooling their investment.

When investing in a unit trust, cash buys units. Each unit trust has thousands of people holding units in the fund. A unit trust is an open-ended investment, as the number of units in each trust will vary depending on supply. As more investors join, more units are created.

Unit trusts cover a variety of funds such as income funds, growth & income funds or growth funds. The funds are grouped together in sectors, covering general principles of style, area and risk level that the fund has chosen to invest in. These range from investing in a particular geographic area such as Europe or Japan, to more specialised categories such as technology. Funds can also be split into two categories in terms of the way that they are managed - actively managed or passively managed. In an actively managed fund the fund manager is responsible for the selection of the shares within the portfolio. A passive fund is more regulated, with the fund following the performance of a particular index (e.g. the FTSE 100). With all these different unit trusts the value of the units may fall and rise depending upon the performance of the fund. Increases are not guaranteed.

Unit trusts are flexible and have no lock-in period, allowing for withdrawal at any time. However, unit trusts are generally seen as medium to long-term investments that are expected to be held for at least five year

Unit trusts are generally viewed as medium risk investments, although the exact risk level will depend on the type and fund selected.

If you would like advice on investing in Unit Trusts, please contact us.