| Unit trusts (UTs) are a form of pooled | | | | managers specifically for investing in their range of |
| investment but are quite different from | | | | UTs and there is a lot to be said in favour of |
| investment trusts (ITs). | | | | pooled investing in equities. |
| They consist of a portfolio of shares managed by | | | | Advisers get an initial commission, so it is worth |
| a professional company but owned separately by | | | | asking for a rebate, which some offer in their |
| a trust. | | | | literature - they are called discount brokers. They |
| The price of a unit is the total value of the | | | | also get a small annual commission (usually 0.5%). |
| underlying investments divided by the number of | | | | As these commissions cannot be avoided by |
| units. Units may be income (income is paid out) or | | | | investing direct it is worth using a discount broker, |
| accumulation (income is reinvested). | | | | who may also provide annual or half yearly |
| Units are bought and sold at varying prices, like | | | | statements, possibly with useful performance |
| shares, any margin between the two being an | | | | comparisons. |
| initial charge which may he as high as 5%. In | | | | Information about UTs can be obtained from the |
| some cases there is an exit charge instead, which | | | | Association of Unit Trusts. |
| reduces over a period, perhaps to nothing after | | | | Open ended investment companies |
| five years. | | | | Unit trusts are a singularly British institution and |
| There is also an annual charge in the form of a | | | | many are converting to the continental style open |
| management fee, usually 1-2% of the fund value. | | | | ended investment company (OEIC), which have |
| UTs have a similar variety of investing areas to | | | | only one price for buying and selling, with separate |
| ITs. Of particular interest may be corporate bond | | | | charges. As they are companies, the 'units' are |
| funds, especially those targeted at high yield | | | | actually shares. |
| bonds. | | | | However, there is a proposal that single pricing |
| It must be remembered that the capital value of | | | | should become compulsory for unit trusts. |
| corporate bond funds is affected by changes in | | | | Fund supermarkets |
| market interest rates a rise in rates means a fall | | | | There are fund 'supermarkets' or 'networks', |
| in value and vice versa. High yield bonds often | | | | where the provider offers (usually over the |
| include foreign company bonds and so are also | | | | Internet) a number of pooled investments to |
| subject to exchange rate fluctuations. | | | | choose from, with easy (and cheap) transfers |
| UTs do not have the facility for gearing and | | | | between the funds. They are frequently discount |
| cannot be at a discount or premium to the | | | | supermarkets, with lower initial charges. |
| underlying investments, so tend to be less volatile. | | | | Some providers offer a much wider choice than |
| Many PEPs and ISAs are set up by unit trust | | | | others, so again here it pays to shop around. |