A unit trust is a type of collective investment scheme popular in the UK, which pools money from multiple investors to invest in a diversified portfolio of stocks, bonds or other securities. Each investor in a unit trust owns units, which represent a portion of the holdings of the trust. The value of these units changes with the performance of the underlying investments. Unit trusts are managed by professional fund managers who make investment decisions on behalf of the investors, aiming to achieve the fund's investment objectives.
The significance of unit trusts lies in their ability to offer investors access to a broad range of investments that might be difficult or costly to access individually. This diversification helps to spread risk, as the impact of poor performance by any single investment is mitigated by the overall performance of the fund's diversified portfolio. Unit trusts are also accessible to investors with varying levels of capital, making them an attractive option for individuals looking to invest in the financial markets without the need to manage their investments actively.
Moreover, unit trusts provide flexibility and liquidity, as units can typically be bought or sold on any business day at the current market value. This ease of access enables investors to adjust their investment positions in response to changes in their personal circumstances or market conditions. However, investors should be mindful of the fees associated with unit trusts, including management fees and potentially entry or exit charges, which can affect overall returns.
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