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Investments & Saving - Unit Trusts & OEICS

A form of collective investment, a unit trust is actually a legal trust that allows investors to pool their money together.  Trustees, usually banks or insurance companies, then invest the money with a fund manager who makes the day-to-day investment decisions. The funds can invest in a range of companies and regions, in line with the objectives set out in the trust deed.

It has to be said that unit trusts have a fairly complicated structure. They’re effectively a large pot of money split up into different units, which investors then buy from fund managers. Because they’re open-ended, there’s no limit on the amount of money the fund can accept, so the number of units will constantly vary in response to investor demand.

Then there’s what’s called the ‘bid-offer spread’. When you buy units in a unit trust, you’ll pay the offer price, whereas if you choose to sell your units, you’ll sell at the bid price. The fund manager then makes a spread around these two different prices, in what’s known as dual pricing.

To work out the price of the units themselves, the fund manager values all the assets in the fund – how much all the individual companies are worth – and divides this figure by the amount of units in issue. As an example, if the fund has assets worth £500 million, and there are 100 million units in issue, each unit has a value of £5.

These unit trusts can be in an ISA to get the tax free benefit.

The Investments can have a range of risks associated with the them depending on the persons attitude to risk. Generally, the riskier the Investments the better the return.

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