Unit Trusts

Unit trusts are collective type investments that are found in the UK, Ireland, Jersey, Isle of Man, New Zealand, South Africa, Australia, and Singapore. They offer investors access to numerous kinds of securities. The value of the asset can be calculated by the total number of investment units, times the unit prices, minus any management or transaction fees or other costs. Every unit trust has a specific objective that will determine how it is invested. In the UK, the unit trusts industry manages over £3 trillion. Read more...>

One sub-type of unit trusts are Open-Ended Investment Companies, or OEICs, (pronounced as "oiks"). OEICs started in the mid-1990s, and were designed with a single-price charging structure. This was an easier investment structure for typical individual investors to understand. Unit trusts and OEICs are currently the most popular ways that ordinary investors can have access to the stock markets of the world.

With unit trusts, you purchase at an "offer" price, and then you sell at a "bid" price. At any given time, the offer price is an average of 6% greater than the bid price. The difference between offer and bid price is called the "spread." With OEICs, there is a single share price that is basically a median value between what would be the offer and bid prices of the fund.

In unit trusts, though the spread is normally around 6%, the trust groups can enlarge this gap to as high as 10% if it looks like there is a run on a fund, with many more sellers than buyers. By enlarging the spread between the offer and bid price, the unit trust manager can deter investors in the fund from selling out, thus worsening a run.

Plenty of ordinary investors invest in unit trusts through a regular savings scheme where they commit the same amount of money each month (which may be withdrawn automatically from savings accounts). A typical minimum monthly contribution is £50, though some are as low as £20. You can also invest on a non-recurring, lump sum basis, but with lump sum investments in unit trusts, the minimum investment is usually around £500.
 

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