If you want to invest in unit trusts, you should know that they spread investors’ money across a large variety of investment vehicles, thus reducing the risk of loss. This type of trust represents a collective investment scheme, which is established under a trust deed. Available to investors from the United Kingdom, Ireland, New Zealand, and other countries, these trusts give investors access to a large number of securities. Some consider unit trusts in the UK to be synonymous with mutual funds as used on the North American continent. In the United Kingdom, many managers of unit trusts have converted to OEICs (open ended investment companies) recently. Investment companies usually have a single price for sale and purchase, with dual pricing permitted with recent regulatory changes.

In general, a unit trust represents an open ended investment, and assets’ value corresponds to the unit price multiplied by the number of units, minus the managements or transaction fee and other costs. Every fund features an investment objective, which defines its limitations and management aims.

Unit trusts typically have a structure, with fund managers running them for profit. There are trustees who make sure that the fund manager sticks to the investment objective of the fund, safeguarding the assets. Unitholders are persons who have rights to assets. Registrars work as middlemen between different stakeholders and the fund manager and are engaged by the latter. Finally, unitholders, with the permission of distributors, transact in the unit trust.

Generally, a unit is created by investing and cancelling, meaning that money is divested. The cancellation and creation price will not always match the bid and offer price. Prices may vary and relate to the lows and heights of the asset in one day, subject to the established regulatory rules. Box profits represent the difference between the creation and cancellation price, and profits are based on them.

Given the unincorporated structure of unit trusts, they can hold assets and pay out profits to holders, instead of reinvest them into the fund. Investors are beneficiaries under the trust, and its success depends on the experience and expertise of the company that manages it. Most often, investment instruments in unit trusts include cash equivalents, mortgages, securities, and property.

What are the risks involved in investing in a unit trust? By way of diversifying the investment portfolio, the trust acts to spread the risk. This allows investors to take advantage of stock market returns and not limit their investments to just a few companies. Regardless of investors’ present or future income and objectives, there are a variety of unit trusts to match investors’ risk profile.

The main difference between mutual funds and unit trusts is that the former are actively managed. Dividend payments, interest, and capital gains are paid out to shareholders at regular intervals. Unit trusts are regarded as low-return and low-risk investment because they normally have low operating expenses. At the same time, there can be exit and entrance fees as well as sales charges.