unit trust

A unit trust is form of collective investment constituted under trust deed. Found in the UK, Ireland, Australia, New Zealand and British Isles offshore jurisdictions, unit trusts offer access to wide range of securities for investors. Unit trusts are open-ended investments; this means an underlying value of assets is always directly represented by total number of units issued multiplied by unit price. Each fund has a specified investment objective to determine management aims and limitations.

Structure = The fund manager runs the trust for profit. The trustees ensure the fund manager keeps to the fund's investment objective and safeguards the trust assets. The unitholders have the rights to the trust assets.

You don't own a share of the overlying trust, but you buy units in it, which are then used to invest in various things. This pools your assets with other investors. Generally speaking Unit Trusts and OEICs are slightly safer than shares. Each unit invests in several other areas. Therefore, the spread of the investment reduces the risk associated with investing in a single company.

Unit trusts are collective funds which allow private investors to pool money in a single fund, spreading their risk, getting the benefit of professional fund management, and reducing their dealing costs. Different trusts have different investment objectives. Some invest for income, some for growth. Some invest in small companies, some in large. Some invest in the UK, some in other territories. As an investor you can choose the trust that matches your interest and objectives.
Investment decisions are made by professional fund managers appointed by the trustees. These managers make annual charges.
Every day trustees compute the value of the trust, divide it by the number of units in issue, and produce a bid and offer price based on that calculation. Unfortunately, when you invest in a unit trust, you usually never know the price you will be charged for units until the next valuation point, typically midday the following day. Unit trusts are well suited to regular savers who want to drip-feed money into the market every month. With unit trusts, you can invest as little as £50 per month, averaging the acquisition cost of your shares over many months.
Many unit trusts make an initial charge when you invest, and their management charges are deducted from fund income.

History
The first unit trust was launched in Britain in 1931 by M&G. The rationale behind was to emulate the comparative robustness of US Mutual Funds through the 29 Wall Street crash. The first trust called the 'First British Fixed Trust' held shares of 24 leading companies in fixed portfolio not changed for the fixed lifespan of 20 years. The trust was relaunched as M&G General Trust and later renamed as the Blue Chip Fund.

By 1939 there were 100 trusts in the UK, managing funds in the region of £80 million.

In 1998 Share prices have continued to fall in India amid continuing concern over the financial strength of the Unit Trust of India UTI -- the country's largest mutual fund.

In 2002 The Indian government promised to bail out the country's largest mutual fund, Unit Trust of India (UTI), to the tune of 145bn rupees (1.9bn; $2.94bn). Correspondents say the fund has come under pressure as two of its largest clients seek to withdraw their investments but senior UTI officials maintainthere is no reason for concern.

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