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unit trust


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1 In the UK, a trust formed to manage an investment portfolio, in which a large number of different investors can buy units. This gives the small investor access to a diversified portfolio of securities, chosen and managed by professional fund managers, who seek either high capital gains or high yields, within the parameters of reasonable security. The trustees, usually a commercial bank, are the legal owners of the securities and responsible for ensuring that the managers keep to the terms laid down in the trust deed. The Financial Services Authority authorizes firms that sell units, most of which belong to the Investment Management Association (IMA). Prices of unit trusts are quoted daily, the difference between the bid and offer prices providing a margin for the management costs and the costs of buying and selling. Many trusts are now available, specializing in various sectors of the market and catering for both those seeking growth and those seeking income. Investors should always look carefully at the charges associated with unit trusts. Basic-rate tax is deducted from the dividends paid by unit trusts and capital gains on the sale of a holding are subject to capital gains tax. In the USA unit trusts are called mutual funds See also unit-linked policy.

2 A trust scheme (also called a unit investment trust) in the USA in which investors purchase redeemable trust certificates. The money so raised is used by the trustees to buy such securities as bonds, which are usually held until they mature. Usually both the number of certificates issued and the investments held remain unchanged during the life of the scheme, but the certificates can be sold back to the trustees at any time.

Subjects: Financial Institutions and Services.


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