Unit Trust

If you don’t like the sound of investing your hard earned cash in individual shares and having to choose which shares to invest in, a unit trust may be what you have been looking for. A Unit Trust is a way of investing your money in a large set of shares in one easy process. The money you pay, along with all the money other people pay in, is used to buy shares in a particular cross section of the market.

Unit Trusts are broadly split in to two types, either actively managed or passive. In an actively managed trust, the shares at any one moment are individually chosen by a fund manager. This person will try to do better than the market performs on average to gain greater rewards for his customers and himself. A passive fund has a set spread of shares that customers money is invested in, for example the FTSE 100, or a selection of technology companies. The money is always spread in a fixed way whatever happens in the market. Surprisingly, passive funds normally perform better than managed funds, and also have lower fees.

Most Unit Trusts can also be put into an ISA to shield your income from the taxman. They are also a good way to invest a certain amount regularly every month as many have no entry fees. If you wanted to invest £100 in individual shares every month, the £10 or so purchase costs each month would soon add up, but with a unit trust all your investment will earn you money.