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Unit trust

From Wikipedia, the free encyclopedia

For UIT, a U.S. fund type, see Unit Investment Trust. A unit trust is a form of collective investment constituted under a trust deed. Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore[1], and the UK, unit trusts offer access to a wide range of securities. Unit trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective to determine the management aims and limitations.

1 Structure

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1.1 Open-Ended

2 Bid–Offer Spread 3 Mechanics 4 OEIC conversion 5 History 6 Ways To Invest 7 See also 8 Further reading 9 References 10 External links


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The fund manager runs the trust for profit. The trustees ensure the fund manager keeps to the fund's investment objective and safeguards the trust assets. The unitholders have the rights to the trust assets. The distributors allow the unitholders to transact in the fund manager's unit trusts The registrars are usually engaged by the fund manager and generally acts as a middleman between the fund manager and various other stakeholders


The rationale behind the launch was to emulate the comparative robustness of US mutual fundsthrough the 1929 Wall Street crash. The trading profits based on the difference between these two sets of prices are known as the box profits. This difference is known as the bid–offer spread. OEICs normally have a single price for purchase and sale. each time units are redeemed the assets sold match the prevailing unit selling price. To cover the cost of running the investment portfolio the manager will collect an annual management charge or AMC. Typically this is 1 to 2 percent of the market value of the fund. the fund is equitably divided into units which vary in price in direct proportion to the variation in value of the fund's net asset value. Each time money is invested new units are created to match the prevailing unit buying price. to 5% or more on assets that are harder to buy and sell such as property. [edit]OEIC conversion In the UK many unit trust managers have converted to Open-Ended Investment Companies (OEICs) in recent years. Unit trust trades does not have any commission. [edit]History The first unit trust was launched in the UK in 1931 by M&G under the inspiration of Ian Fairbairn. The creation price and cancellation price do not always correspond with the offer and bid price. with the purpose of allowing the manager to control liquidity. The first trust called the 'First British Fixed Trust' held the shares of 24 leading companies in a fixed portfolio that was not changed for the . In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets. The bid–offer spread will vary depending on the type of assets held and can be anything from a few basis points on very liquid assets like UK/US government bonds. Subject to regulatory rules these prices are allowed to differ and relate to the highs and lows of the asset value throughout the day. in line with unit trusts.Unit Trust in India [edit]Mechanics A unit is created when money is invested and cancelled when money is divested.Unit trusts are open-ended. In some jurisdictions the bid–offer spread is referred to as the "bid–ask spread". although recent regulatory change now permits dual pricing too. More cynical observers may have noted that there is increased latitude to hide charges in the OEIC Dilution Adjustment(more commonly referred to as "Swinging Single Price") whilst maintaining the veneer of simplification [citation needed]. The motivation for conversion is often cited as a simplification and pre-cursor to offering funds Europe-wide under EU rules. The trust deed often gives the manager the right to vary the bid–offer spread to reflect market conditions. [edit]Bid–Offer Spread The trust manager makes a profit in the difference between the purchase price of the unit or offer price and the sale value of units or the bid price.

To a certain extent they are quite right. also act as management companies for unit trusts.known as blue chip shares . Shares are the main commodity traded by the Johannesburg Stock Exchange. The trust was relaunched as the M&G General Trust and later renamed as the Blue Chip Fund (Source M&G). retirement annuities and other related products. These are thousands of South African investors all of these are more or less the same thing.liquid assets or cash . Unit trusts are not insurance products.are in demand and are therefore expensive. held through a nominee account or through a PEP (Personal Equity Plan ) or ISA (Individual Savings Account). How do they work? Unit trusts are the pooled resources of thousands of investors who have entrusted their money to a management company. The Johannesburg Stock Exchange represents the main sectors of the economy.completes the contents of a unit trust portfolio.the individual then uses the pooled money to buy goods in bulk at a lower price. Many individuals cannot accumulate large enough pools of money to give them access to an expensive service or product. The trust does not give the shares to the chip shares. Shares that show a stable or better performance cushion the drop in price of other shares.. Some types of shares . Along with life available to everybody. Unit trusts work in very much the same way. retirement annuities.unit trusts . A fifth sector .fixed lifespan of 20 years. mining houses and industry. where risks are lower than in the specialist trusts because the general unit trusts gain exposure to more ." The investor receives a certain number of units for the money he has entrusted to the company that manages the unit trust. equity funds. What are Unit Trusts? Stokvels. the fluctuations in unit trusts are often not so severe. Daily newspapers publish the prices of these shares and many others on their financial pages. Examples of blue chips are Driefontein gold mines. By 1939 there were around 100 trusts in the UK. This is especially the case with the general unit trusts. A golden key to unlocking these riches is now in the hands of even the most modest investor. In the case of Stokvels . The management company buys shares on the Johannesburg Stock Exchange on behalf of the investors. Fluctuations of share prices on the JSE cause this risk and are also responsible for their increase or decrease in value. etc. other mining. Many insurance companies who market life assurance. unit trusts . Anyone can buy units by investing a single lump sum or by investing on a regular monthly basis. (Source M&G) For details of the trust origin of the unit trust and its relationship with American mutual funds. Kam Fan (1998) The Legal Nature of the Unit Trust. Clarendon Press ISBN 0-19-876468-5 [edit]Ways To Invest Units can be bought direct from the fund manager. but combines them in a portfolio. In most equity or share investments there is always an element of risk. managing funds in the region of £80 million. or to negotiate better returns or loans at low rate of interest. The management then divides the portfolio into many equal "units. The unit trusts represent each of these four sectors in their units. see Sin. Suncrush and South African Breweries.the original term was probably "stock fairs" . However. mutual funds. The high prices of some shares have been as effective as a Yale lock and an iron bar in prohibiting investors from purchasing them. unit trusts fulfill a very important role in the individual's portfolio. They obtain something that is almost impossible for individuals . That key .

sectors. investors must meet particular requirements before they can turn their investment to cash. When the downturn cycles (bear markets) are over. is obvious. A barometer of the country's economic health is the Johannesburg Stock Exchange. The Receiver of Revenue is also a hazard that investors have to cope with when ensuring the best returns for their money. The beauty of unit trusts is that the investor needs no expert knowledge. The individual doesn't require experience in buying or selling or a knowledge of shares. The total interest income from all sources up to R2 000 is tax free. In addition. Protecting one's buying power has become a major problem. an education for your child or owning your own car. Unit trusts are therefore medium to long-term investment avenues (five years and longer). The trusts will be able to purchase more units with the same amount of investors' money.usually within three to five working days. In an ailing economy. For short-term needs such as buying clothes or groceries. The advantage this has for taking care of a sudden financial crisis. unit trusts have become an ideal way of providing for medium-term needs. can share in this industry that opens the door to every sector of the South African economy. life policies and fixed deposits. as is dividend income. as high as 25% and even more! Because of their proven track record. On receiving a written instruction. That is the bad news! Bad news becomes good news Unit trusts utilize the bad news to create good opportunities for investors. Unit trusts are consistently proving their worth by beating inflation over the medium to long term. With retirement annuities. the drop in share prices means that more units can be purchased on behalf of the investor for the same amount of capital. In the case of unit trusts the advantages are on par with the returns. while giving capital growth. the management company will immediately sell the investor's units at the prevailing price. paying rent and those unexpected emergencies that we all have to deal with. Therefore the reasoning is that. especially in a country with a high inflation rate. qualifications. the share prices will be lower. the compound annual growth of unit trusts was above 20% on average and. Investing in unit trusts can meet your needs for a deposit on a home. With unit trusts you have direct access to the money invested. a savings account will do. regardless of occupation. in certain unit trusts. when the inflation rate was well over 14% in 1990/1991. the longer the period of investment. What are their advantages? The most obvious advantage of unit trusts is the direct access investors get to wealth creation and profits of the Johannesburg Stock Exchange. you can share in the biggest and best the economy has to offer investors. Clearly you don't need to be a millionaire to share in the advantages unit trusts have to offer. prices will fall and subsequently so will the price of units in a unit trust. The investor will receive his money shortly afterwards . For example. Teams of professional economic and market analysts will invest on the investor's behalf to ensure the maximum capital and income growth. With a small regular monthly amount (between R20-R50 depending on the company) or a low single lump sum (between R100-R500 depending on the company). sex or age. the lower the risk. while capital growth is normally totally tax free. This is also why unit trusts are not usually a short-term investment. you can invest for as . The larger number of units purchased then offer a bigger opportunity for growth in an upturn of the market. Share prices generally rise in a healthy economy. In simple terms. Everyone. They are able take advantage of both the downturns and the upturns.

long as you like. You do not sign a contract committing you to invest for a certain period. These investments are extremely flexible and one can change from a single lump sum to regular monthly investments. One can increase or decrease the amount according to one's individual needs. Few other investments are as accessible and flexible as unit trusts! .