Unit trusts have become the investment of choice for many people over recent years. They offer a number of advantages which make them an attractive alternative to direct stock and bond investments. Unit trusts provide investors with access to a range of potential investments, offer them the potential for greater diversification, offer liquidity and a choice of cost structures. Furthermore, they are typically managed by professional fund managers who tend to be more knowledgeable and better informed than the ordinary investor.
A unit trust is a pooled investment product which is typically structured as a trust fund. The trust fund consists of a pool of money collected from various investors which is invested in a range of securities. Investors have the opportunity to buy units of the trust, which represents a specific portion of the trust fund. Furthermore, the trust’s investments may be spread across a variety of asset classes such as stocks, bonds and cash, depending on the trust’s investment objective.
Unit trusts are typically usd by investors to diversify their investments across a variety of asset classes, geographic regions and sectors, which allows them to benefit from the performance of a typical mix of investments without having to purchase each security separately. Unit trust investments can also reduce the amount of stock picking and research that an investor needs to do as the fund manager typically sets the asset allocation, conducts the research and makes the buy and sell decisions.
Unit trusts are also less risky than direct investments in stocks and bonds, as the portfolio is managed by a professional fund manager and the risk of a single stock or sector performing badly is mitigated by the portfolio’s diversification. Furthermore, unit trusts offer more liquidity than direct investments in securities, as units are bought and sold on a daily basis through the fund manager.
Unit trusts offer investors a choice of cost structures. Typically, a unit trust will include management fees, performance fees, entry, exit and switching fees, and custodian fees. The fees and charges are typically paid from the assets of the trust and will vary between trusts.
Unit trusts offer a number of advantages to investors which make them an attractive alternative to direct investments in stocks and bonds. They provide investors with access to a range of potential investments, offer them the potential for greater diversification than direct investments, offer liquidity and a choice of cost structures. Furthermore, they are managed by professional fund managers who tend to be more knowledgeable and better informed than the ordinary investor.
