MARKETS: UNIT TRUSTS
Like investment trusts, unit trusts bundle together the assets of small investors in order to give them a less risky opportunity to invest in the equity markets. Rather than buy shares in a company, investors buy units whose price rise and fall with the value of the assets held by the trust. The unit trust managers earn their money through the spread between the buy and sell prices of the units and through a management charge.
Their must actually be a trust, whose trustees are normally either banks or insurance companies. The trustees’ job is to ensure that the fund is run properly and not to supervise its investment policy. The later task is organised by specialist managers who often are also supervising the funds of insurance companies and merchant banks.
Since unit trusts are not quoted companies, they do not suffer from the discount problem of Investment Trusts. Nor can they borrow money to invest. This makes them less risky than investment trusts. On the other hand, their charges tend to be higher with a 5 per cent initial charge and a 1-15 per cent annual charge quite common.
