What Are Unit Trusts?

A unit trust is a form of collective investment constituted under a trust deed. Unit trusts are open-ended investments; therefore the fundamental value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged. Each fund has a particular investment purpose to establish the management aims and limitations. It is an SEC registered investment company which purchases a fixed, diversified portfolio of income producing securities and then sell shares in the conviction to investors. The major distinction between a Unit Trust and a mutual fund is that a mutual fund is actively managed, while a unit investment trust is not managed at all. Capital gains, interest and dividend payments from the trust are passed on to the shareholders at regular intervals. If the trust is one that invests only in tax-free securities, then the income from the trust is also tax-free. A unit investment trust is generally considered a low-risk, low-return investment. Some investors prefer Unit Trusts to mutual funds because Unit Trusts typically incur lower annual operating expenses (since they are not buying and selling shares); however, Unit Trusts often have sales charges and entrance/exit fees also called fixed investment trust or participating trust or Unit Investment Trust (UIT).

            A unit trust is an organization which offers investors access to a wide range of securities. All types of investors invest their money in unit trusts. It is usually found in countries such as the United Kingdom, Australia, New Zealand, South Africa and the offshore jurisdictions of the British Isles.

             A unit trust is defined as a form of collective investment. It is constituted under a trust deed. It is an open-ended investment. In other words, the underlying value of the assets is equivalent to the total number of units issued multiplied by the unit price less the operation fees or the management fees which are charged by the organization.

            Each of the funds has a stipulated investment objective. The purpose of an investment objective is to determine the aims and limitations of the management.