Unit Trust Basics :)

Unit Trust Basics

1. What are unit trust funds?
2. Direct investment versus unit trust funds - 'pros' and 'cons'?
3. For whom are unit trusts most suitable?

1. What are unit trust funds?
   
   Unit trust funds, also known as managed investments, allow you to pool your money with that of many other investors so that the unit trust fund can buy a wide range of investments managed by a professional team. This includes investments which may not ordinarily be available to you through direct investment such as large commercial properties and corporate bonds.
   
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2. Direct investment versus unit trust funds - 'pros' and 'cons'?
   
   Once you have decide to invest, you have a choice of investing directly or through a unit trust fund. Which method is appropriate may well depend on your individual investment needs, however, using professional fund managers can generally provide better returns over the long-term.
   
   Fund managers tend to outperform individual investors because:
   • Their portfolios are constructed using a defined and consistent investment philosophy;
   • Fund managers have a far greater access to quality information including company contacts, competitors and customers than do individual investors;
   • Fund managers employ full-time investment professionals to monitor investment markets and the way economic developments affect these markets;
   • The size of their portfolios generally means that fund managers can more easily reduce risk through greater diversification. They can also reduce risk by implementing sophisticated risk-management techniques involving the use of derivatives; and
   • Fund managers have the economies of scale to reduce expenses through lower transaction costs. For example, fund managers generally pay much lower commissions to stockbrokers.
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3. For whom are unit trusts most suitable?
   
   Unit trusts are a simple and convenient investment option for people who have a long-term investment horizon but do not have either the time, desire, or expertise to invest directly in financial markets.
   
   Unit trusts can be particularly suitable for smaller, first time investors as they offer the opportunity to establish a broadly diversified portfolio of assets with a relatively small amount of money.
   
   However, larger investors can also benefit from unit trusts as they provide access to the expertise of professional investment managers.
   
   When you invest in a unit trust fund, your money buys 'units' in that fund, at a price that is struck for that particular day. Over the period in which you invest, the unit trust price will move up and down as the value of the investments with the unit trust fund rise or fall. Returns from a unit trust fund are typically calculated based on movements in the bid (or withdrawal) unit trust price and assume any income distributions paid to investors are reinvested in the fund as additional units.