A Unit Trust is a type of collective investment that lets you, and many other investors, invest in the stock market and other asset classes making use of a fund manager's skills.

There’s no doubt about it, spreading any risks to your money is a good idea, whichever kind of investment you choose. That’s why collective investments can be attractive, because you ‘pool’ your money with other people’s, and share the risks involved.

How does a Unit Trust work?

A Unit Trust is another type of collective investment (you could also read about OEICs). In a Unit Trust, you buy or sell ‘units’ of a fund that’s run by a fund manager. He or she buys shares and investments in a range of different companies and asset classes (things like equities, gilts and property), and tries to identify those that are likely to go up in value over a period of time.

The fund has a number of shares (or other investments) in it, so the risk to your money is spread. The value of your units also varies as the value of the Unit Trust changes: it goes up and down, in line with variations in the assets’ value and so you could loose some or all of your original investment. That’s why an independent financial adviser (IFA) usually recommends holding collective investments for a minimum of five years, hopefully ‘smoothing’ out any returns you get, over that period of time.

Any growth achieved by the investments within the unit trust will be converted into additional units for you, unless you choose to take regular income. As you can already see, there’s a lot to take on board before you start putting your money into this kind of investment. An IFA can help you choose a Unit Trust that has an investment strategy you feel comfortable with, and explain more about the risks, potential benefits and charges involved. We can put you in touch with an IFA in your area, so why not use our search tool to find one that’s local to you today?

Questions you might like to ask an IFA…

How does this Unit Trust differ from an OEIC, why choose one not the other?

Is there a minimum amount of time my money should be kept in a Unit Trust?

Will I get any interest or dividends on my money?

What are the charges involved, and what are they for?