A unit trust is primarily found in the UK, Australia, South Africa, Singapore and Ireland. It is an easy way to invest in larger companies, because you purchase units and you group your money together with other like-minded people to become one whole unit that has more money with which to invest. They are an open-ended investment; this means there is no end date like you would get with a bond.
With the mix of the shares that are purchased by the unit trust fund manager it will mean that your risk of losing your capital is reduced. They were first introduced in 1931 by M & G, the idea for the unit trust came from Ian Fairbairn and it has grown and developed since then.
With this kind of investment you can add to the unit trust monthly with a set amount or you invest with a lump sum. You will find that you will need to pay an initial investment charge and this is normally around the 5% mark, then there will be an annual charge anywhere between the 1 and 2 per cent range. This will pay for the management of the fund, no one works for free.
You have two price ranges with unit trust that you need to be aware of and the difference in-between is called the spread. You have the offer price, this is the price you pay for the unit trusts, and the lower bid price, this is the price you sell the units. To make a profit you need to sell when the lower bid price is higher than the offer price and the profit you make is the difference between what you paid and what you sold them for.
The unit trust is a great way to get on the stock market because you then have a greater power because you are part of a larger group so any risk is shared but the same too with the profit. Typically you are paid interest twice a year, if you are looking for and income from your investment, then you need to choose a particular kind of unit trust called, inc units. These will give you an income during the year.
The unit trust is managed by the fund manager and they are the people that choose the investments that your money will be invested in. You can have some say in this by choosing the fund that you like how they have performed in the past and what shares they focus on. If you are new to the stock market then choosing an option that is more of a general fund will give you a great base to build on.
So, a unit trust is an investment that has no end date, and you group your money with like-minded investors, who trust a fund manager to invest the money on the stock market. It gives the investor a great selection with a lower risk factor, but as with all stock market investment your capital is not guaranteed.