A unit trust is a trust formed by a manager and a trustee under a trust deed, and they have been in existence since the 1930s. It’s a trust in the legal sense and is therefore subject to trust law rather than company law. They are based on the simple idea of dividing professionally managed funds into a number of equity units.
There is a very wide range of authorized unit trusts offering different investment objectives to suit the needs of different types of investors. Broadly speaking authorized unit trusts fall into one of the following categories:
General (or balanced funds) aim for long-term capital growth together with a reasonable level of income. They provide a good spread of risk by investing in a well-diversified portfolio of domestic equities.
Capital Growth Funds concentrate on capital appreciation rather than income. Although investment is primarily in domestic equities, a proportion of assets may be held overseas. Some funds specialize in smaller companies, recovery situations or special situations.
Equity Income Funds aim to provide a high and rising level of income by investing mainly in high-yielding equities.
Preference Income Funds aim to provide high, secure income by investing mainly in preference shares.
Gilt Funds invest in gilts and fixed-interest securities. They normally aim for high income although some concentrate on capital appreciation.
International Funds invest on a worldwide basis normally with particular emphasis on the UK, US and Japan. They concentrate on capital appreciation.
Specialist Overseas Funds invest in a particular geographical region such as Japan in Asia, Australia or Europe. Again, the main emphasis is on capital appreciation rather than income.
Specialist Sector Funds invest in a specific industry such as oil and energy or investment trusts.
Unit trusts have proved incredibly popular because your money is invested in a broad spread of shares and your risk is reduced. But they are gradually being replaced by their modern equivalent, the Oeic pronounced as 'oiks'.
Unit trusts and open ended investment companies (Oeic) both are forms of shared investments, or funds (open ended) that allow you to pool your money with thousands of other people and invest in world stock markets.
Different ways of buying a unit trusts are
1. Direct from Fund Provider
2. Discount Broker
3. Fund Supermarket - FundsNetwork
Oeics are often set up as umbrella funds, which mean having a single company with a number of underlying funds, or sub funds as they are sometimes known, such as UK Equity and European Equity. Each sub fund has its own separate pool of assets and shareholders.
When investing in unit trusts, you buy units at the offer price and sell at the lower bid price. The difference in the two prices is known as the spread. To make a return on your investment the bid price must rise above the offer before you sell the units.
An Oeic fund has a single price, directly linked to the value of the fund's underlying investments. All shares are bought and sold at this single price, so there is no need to calculate the spread. The Oeic has been described as a 'what you see is what you get product'. When they were originally set up, single pricing was compulsory for Oeics, but, as with unit trusts, they now have a choice of single or dual pricing. Oeics have always been able to have share classes, and in fact this was one of the early benefits in launching an Oeic as opposed to a unit trust.
Choosing which type of fund to buy depends not only on where you live, but what your attitude to risk and your aims and objectives are. It is worth seeking professional advice to ensure you make the right choice. Many UK advisers prefer to stick to OEICs or unit trusts for their greater familiarity.
A number of fund managers run more than one type of collective investment scheme. Jupiter, for example, offers investment companies and unit trusts to UK investors and also offers a Sicav to international fund buyers.
