|
Note: the Unit Investment Trust (UIT) is a separate US fund type.
A Unit Trust is form of collective investment constituted under a trust deed.
Mainly found in the UK and British Isles offshore juristictions, unit trusts offer access to wide range and types of invest for all types of investors.
Each fund has a specified investment objective to determine the management aims and limitations.
Structure
- The fund manager runs the trust for profit.
- The trustees ensure the fund manager keeps to the funds investment objective and safeguards the trust assets.
- The unitholders have the rights to the trust assets.
Mechanics
The fund manager offers units for sale. A unit is created when money is invested and cancelled when money is divested. The unit price varies with the value of the underlying assets.
Unit Trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units multiplied by the unit price.
Bid-Offer Spread
The trust manager makes a profit in the difference between the purchase price of the unit or offer price and the salle value of units the bid price. This differece is known as the bid-offer spread. Typically the bid-offer spread is 5% but this may vary. The trust deed often gives the manager the right to vary the bid-offer spread to reflect market conditions.
To cover the cost of running the investment portfolio the manager will collect an annual management charge or AMC. Typically this is 1 to 1.5%.
OIEC conversion
Many unit trust mangers have converted to Open-Ended Investment Companies (OEICs) in recent years. OEICs have a single price for purchase and sale.
The motivation for conversion is often cited as a simplification and pre-cursor to offering funds Europe-wide under EU rules.
More cynical observers have noted that there is increased latitude to hide charges in the OEIC dilution levy whislt maintaining the veneer of simplification.
History
The first unit trust was launched in the UK in 1931 by M&G. The rationale behaind the launch was to emulate the comparitive robustness of US Mutual Funds through the 1929 Wall Street crash. The first trust called the 'First British Fixed Trust' held the shares of 24 leading companies in a fixed portfolio that was not changed for the fixed lifespan of 20 years. The trust was relaunched as the M&G General Trust and later renamed as the Blue Chip Fund (Source M&G).
By 1939 there were around 100 trusts in the UK, managing funds in the region of £80 million. (Source M&G)
Ways To Invest
Units can be bought direct from the fund manager, held through a nominee account or through a PEP or ISA.
External Links
| 
