A Unit Trust is a collective investment scheme that pools investors' money into a single fund, which is then managed professionally. Investors buy units representing their share in the trust’s portfolio of assets.
A Unit Trust is a form of collective investment where multiple investors pool their funds into a single trust managed by a professional trustee or fund manager. The trust holds a diversified portfolio of assets such as stocks, bonds, or property. Investors purchase units which represent proportional ownership of the trust's assets, and the value of these units fluctuates based on the underlying portfolio’s performance. Unlike some other investment vehicles, Unit Trusts are open-ended, allowing investors to buy or redeem units at the current net asset value per unit.
Unit Trusts impact investment strategy by offering access to professionally managed, diversified asset pools, which can reduce portfolio risk and improve returns through economies of scale. For wealth managers and family offices, Unit Trusts simplify asset allocation decisions and enable incorporation of various asset classes into portfolios efficiently. From a reporting perspective, they provide standardized valuations, making performance monitoring straightforward.
Consider a family office investing $1 million into a Unit Trust. The trust’s portfolio includes stocks and bonds worth $100 million in total, divided into 10 million units, so each unit is worth $10. The family office receives 100,000 units for its investment. If the fund’s net asset value increases by 5% over a year, the unit price rises to $10.50, and the family office’s holding is then worth $1,050,000, reflecting a $50,000 gain.
Unit Investment Trust (UIT)
While both Unit Trusts and Unit Investment Trusts pool investor funds into a portfolio, UITs typically have a fixed portfolio that is not actively managed after inception, whereas Unit Trusts are actively managed with the ability to buy and sell securities within the portfolio.
What is the main difference between a Unit Trust and a Mutual Fund?
A Unit Trust often has a trustee who holds the assets and may have a distinct legal structure, while a Mutual Fund is structured as an investment company. Additionally, Unit Trusts are typically open-ended and sold in units, whereas Mutual Funds may differ in their operational mechanics depending on jurisdiction. However, the terms are sometimes used interchangeably depending on the country.
Are Unit Trust units traded on stock exchanges?
Generally, Unit Trust units are not traded on stock exchanges. Instead, units are bought and redeemed directly from the trust or fund manager at the net asset value price, which is calculated at the end of each trading day.
How are distributions from a Unit Trust taxed?
Distributions may include income, dividends, and capital gains, each potentially subject to different tax treatments based on local tax laws and the trust structure. It is important for investors or family offices to consult tax advisors to understand the specific tax implications of investing in Unit Trusts in their jurisdiction.
