Unit trusts are a form of investment for people who want some sort of long term return on their savings without too much risk. As with some personal pension plans the savings are usually invested by a professional acting on behalf of the saver. Proponents of unit trusts recommend it because they say that risk is more easily balanced because the money belonging to a group of small savers is invested in a number of trusts. You should know that while unit trusts may pose a lower risk factor than other types of investment, there is no guarantee that things can’t go wrong.
An Open Ended Investment
When any money is invested in a certain fund, a unit is created, if the saver or the investment manager opt to take money out of that fund, or divest it, then the unit is cancelled. It is this creation and cancelling of a unit that makes buying unit trusts, what is referred to as an open ended investment.
Some seasoned professionals are of the opinion that long term investments such as unit trusts suit the small saver because the investments are chosen to fit in with the needs of the members of a particular group and then managed for them. While this form of investment may be suitable for people with some money to spare to get their feet wet in the world of investment it might not suit everyone. Anyone who contributes to a company pension fund may not be fully aware that sometimes that money is invested in unit trusts by whoever is running the pension fund. Single investors do not have to use the services of an investment professional but may decide to buy units from a discount broker.
Whether an investor uses a discount broker or an investment manager, if it is personal savings rather than the contributions to a pension fund, he or she may suggest further options to the saver if they want to increase the number of unit trusts they hold.
The general idea with this type of investment lies in the investor not putting all their money into one trust fund. How much a saver pays for a unit will depend on the price at the time of day that it is bought. The investor should be aware that the price they may pay for a unit may not be reflected in the selling price as it depends on the selling price at the point at which it is sold. Unit trusts are probably the most readily understandable investment opportunity for small savers. Some people start investing in this way early on as it can be a way of saving for their retirement.