Unit Trust: Why Invest?

Unit trusts are a form of collective investment that allows investors to pool their money and invest in a range of securities or other assets. This type of investment is appealing to those who want to invest their savings without the time or inclination to manage a portfolio of direct investments or shares. Unit trusts are also a good option for those who want to gain exposure to a wider range of investments than they would normally have access to.

Unit trusts are typically managed by a financial professional who makes investment decisions on behalf of the investors. This means that unit trusts are a good option for those who want a hands-off investment strategy. Unit trusts also allow investors to invest small amounts of money, and they are generally more liquid than other types of investments, meaning that investors can usually sell their shares at any time.

However, it's important to remember that unit trusts carry risks, just like any other investment. The value of a unit trust can decrease, and there is no guarantee that investors will make a profit. Additionally, unit trusts may have associated fees and charges that can impact overall returns.

Unit trusts are a form of collective investment that allows investors to pool their funds to be invested in a portfolio of securities or other assets

One of the main advantages of unit trusts is diversification. By pooling their funds, investors can gain access to a wider range of investments than they would be able to as individual investors. This helps to spread risk and reduce the impact of any single investment's performance on the overall portfolio. Unit trusts also offer professional management, with experienced fund managers making investment decisions and actively monitoring the portfolio. This can be beneficial for investors who lack the time or knowledge to manage their investments actively.

Another advantage of unit trusts is their accessibility. Investing in unit trusts typically requires minimal paperwork and enables individuals to participate in the financial markets without extensive financial knowledge or experience. Unit trusts also provide investors with easy access to their money, as shares can usually be sold at any time or during specific periods throughout the year. Additionally, unit trusts can be a tax-efficient investment option, as income tax on dividends is charged at a lower rate than other forms of income.

However, it is important to consider the risks and fees associated with unit trusts. One of the main risks is market volatility, which can cause fluctuations in the value of the investments. Changes in interest rates can also impact the value of the assets held by the trust. Unit trusts also incur management fees, which are typically charged as a percentage of the assets held in the trust. Other fees may include initial charges, trustee fees, and exit fees.

Overall, unit trusts offer a simple and rewarding way to grow your money, providing investors with access to a diversified portfolio of assets and the expertise of professional fund managers. However, as with any investment, there are risks and fees to consider before deciding whether to invest in unit trusts.

Unit trusts are managed by professionals who make investment decisions on behalf of the investors

Unit trusts are a form of collective investment, established under a trust deed. They are unincorporated mutual funds that hold assets and provide profits to individual unit owners. Unit trusts are managed by fund managers who direct the investments, and the investor is the beneficiary.

Fund managers are financial professionals who make investment decisions on behalf of the investors. They may invest in bonds or shares on the stock market, and the fund is split into units which investors purchase. The fund manager's role is to invest the money in line with the fund's objectives, and they have some discretion in how they do this. Trustees are also assigned to ensure that the fund manager runs the trust following the fund's investment goals and objectives and are often fiduciaries protecting the best interests of the beneficiaries.

The fund manager's investment decisions are critical to the performance of the unit trust. The performance of the trust depends on the fund manager, and a good active fund could be expected to outperform passive ones in the short term. The fund manager makes a profit from the difference between the buying and selling price of each unit, known as the bid-offer spread. They also collect an annual management charge, typically 1-2% of the market value of the fund.

Unit trusts are an attractive investment option as they offer diversification, professional management, and accessibility. They allow investors to access a wide range of investments with a relatively small amount of capital, and the fund manager's expertise can benefit those who need more time or knowledge to manage their investments actively. Unit trusts are also relatively liquid, and it is usually possible to sell units at any time.

Unit trusts are an excellent choice for beginners as they allow them to invest in a diverse range of assets without needing a lot of capital

Diversification

Unit trusts pool money from multiple investors, allowing for the purchase of a broader range of investments than would be possible for most individual investors. This diversification helps to spread risk and reduce the impact of any single investment's performance on the overall portfolio. By investing in a unit trust, individuals can gain access to investment opportunities they might not have been able to access alone.

Professional Management

Unit trusts are managed by experienced fund managers who analyse market trends, select suitable investments, and actively monitor the portfolio. Their expertise can be beneficial, especially for beginners who need more time or knowledge to manage their investments actively. Fund managers direct the portfolio of unit trusts and are often fiduciaries, protecting the best interests of the beneficiaries.

Accessibility

Unit trusts are relatively straightforward to invest in, requiring minimal paperwork. They enable beginners to participate in the financial markets without extensive financial knowledge or experience. Many unit trusts require only a small initial investment, making them an ideal choice for those who may not have a large amount of capital to invest.

Liquidity

Unit trusts generally offer flexible withdrawal options, allowing investors to access their funds as needed. This liquidity feature provides investors with more flexibility in managing their finances.

Affordability

Unit trusts offer an accessible entry point to investment markets that might typically demand substantial capital. Even with a modest investment, beginners can participate in diverse portfolios managed by seasoned professionals.

Transparency

Regular reports and updates keep investors informed about their investments. Investors can easily track the allocation of their funds and monitor performance, fostering transparency and accountability. Fund managers are required to provide regular updates on the fund's performance, portfolio holdings, and fees, allowing investors to make informed decisions.

Unit trusts are relatively simple and straightforward, requiring minimal paperwork

Unit trusts are a form of collective investment that allows multiple investors to pool their funds to be invested in a portfolio of securities or other assets. They are an excellent choice for beginners looking to start their investment journey. One of the reasons for their popularity is their relative simplicity and ease of access.

Unit trusts are relatively straightforward, requiring minimal paperwork. They enable investors to participate in the financial markets without extensive financial knowledge or experience. Investors can simply put their money into a portfolio that is already established and managed for them. This makes unit trusts a potentially simple way to invest in assets such as equities, bonds, and property.

The process of investing in unit trusts is quite simple. Investors buy one or more units of the trust, becoming beneficiaries. Each unit earns an equal return, determined by the level of distribution and/or capital appreciation. The price of each unit depends on the underlying value of the assets, usually calculated daily. Investors can sell their units if they decide to invest their money elsewhere, and they can usually name a beneficiary who will inherit their units if they pass away.

Unit trusts are also simple in terms of their structure. They are established under a trust deed, with the investor as the beneficiary. A fund manager is assigned to invest the pooled money in line with the fund's objectives, and there is a trustee in place to safeguard the assets and ensure the fund manager acts in the best interests of the beneficiaries.

Overall, unit trusts offer a straightforward and accessible way to invest, making them a popular choice for those looking for a simple way to grow their money.

Unit trusts are regulated and governed by various legislations, providing investors with a level of comfort and safety

Unit trusts are a form of collective investment set up under a trust deed. They are regulated and governed by various legislations, providing investors with a level of comfort and safety. For instance, in Kenya, the Capital Markets Authority (CMA) regulates unit trusts. This regulatory body provides an accessible and convenient way for individuals to participate in the financial markets.

In other countries, such as the United Kingdom, a unit trust is similar to a mutual fund. In Canada, unit trusts are referred to as income trusts. The specific regulations and governing bodies may vary depending on the region, but the underlying principle of providing investor protection remains consistent.

The legal structure of a unit trust provides investors with certain rights and protections. For example, unit trusts are established under a trust deed, with the investor as the beneficiary. This means that the investor's interests are prioritised, and the fund manager has a fiduciary duty to act in the investor's best interests. Additionally, trustees are assigned to safeguard the assets and ensure that the fund manager adheres to the fund's investment goals and objectives.

The regulation of unit trusts also extends to the licensing and approval process. In some jurisdictions, a managing company intending to operate a unit trust must apply for a licence and comply with specific terms and conditions set out by the relevant regulatory body. This includes ensuring that the trustee has been approved by the Commission or an equivalent authority. The presence of these regulatory requirements provides investors with confidence and assurance that the unit trusts are operating within a defined legal framework.

Furthermore, unit trust investors benefit from the diversification of their investments. By pooling money from multiple investors, unit trusts can invest in a broader range of assets, reducing the risk associated with any single investment's performance. This diversification is a key advantage of unit trusts and is enhanced by the professional management of experienced fund managers who actively monitor the portfolio.

Frequently asked questions