Investments are a complicated minefield of hopes, dreams and confusions. Even the smartest people enter ignorant and leave confused, sometimes striking it big when making particular decisions. Financial experts study for years to have some understanding of how markets work and what it means to have a sense of financial security. Yet, in these turbulent times, we must be more proactive than ever when considering what our money is doing.
To that end it’s worth considering the security of unit trust investment.
What are unit trusts?
The stock market is notoriously incomprehensible, yet powerful. Everyone knows it can change the fate of countries in a heartbeat, with little idea of how it manages this magical feat. One way the average person engages in the stock market is through investments. A popular investment vehicle – i.e. a way to invest – is a mutual fund. As Investopedia defines it:
“A mutual fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.”
These are operated by money managers, who take the fund’s capital “and attempt to produce capital gains and income for the fund’s investors”. One popular type of investment that uses mutual fund structure is a unit trust investment.
Unit trust outlined
As indicated, unit trusts follow a mutual fund outline. Except, the major quality is that with these kinds of investments, the funds go to individual unit owners, not reinvestment into the fund. This also allows for control. As What Investment notes: “Investors can buy or sell units at any time. As people buy units, the pool gets bigger; as they sell them, it gets smaller.”
The goal of the unit trust is to obviously provide a return to investors. This happens “either in the form of capital growth (an increase in the price per unit) or income (dividends paid to the unit holders in proportion to the number of units they hold).”
Unit trusts are also known for being secure, since it’s managed by experts but also overseen by others (trustees). They’re also known for being open-ended, allowing investors to focus on those areas they believe most benefit them. Security and ease of access make unit trusts ideal investment vehicles for those wanting a gateway into the world of investments. Before that happens, though, investors should begin learning what different categories of unit trusts means.
(Photo credit: Tristan Martin / Flickr)