Unit Trusts v Investment Trusts
Published / Last Updated on 14/06/2024
Most stock market linked savings, ISAs and pension plans are unit linked collective investment schemes. This means:
- You save/invest collectively with hundreds if not thousands of investors in the same fund.
- The fund manager takes this money and invests in stocks, shares, bonds, property and overseas sectors.
- When you invest you buy a ‘share’ or a unit in the fund.
- The value of you investment depends upon the number of units you have bought and the value of the fund.
Collective Funds: Valuing the Units
Most unit linked plans are open ended i.e., more and more units can be bought (new premiums/new investors) giving the fund manager more money to invest on our behalf.
The value of the underlying assets owned by the fund and therefore your share of the fund (your % of the units in the fund) have their proportionate value of the value of the fund divided by the number of units issued.
Unit Trusts v Investment Trusts:
|
|
Unit Trust |
Investment Trust |
|
Collective Investment? |
Yes |
Yes |
|
Available as a direct investment (taxed just like shares)? |
Yes |
Yes |
|
Available inside an ISA or Pension Scheme? |
Yes |
Yes |
|
Open Fund i.e. more units can be issued? |
Yes |
No |
|
Closed Fund i.e., no more units can be issued, there is a set number of units? |
No |
Yes |
|
Value of units based upon the value of underlying assets owned by the fund? |
Yes |
No |
|
Value of units based upon demand for the ‘Trust’? |
No |
Yes |
As you have seen above, most unit linked funds are valued based upon the underlying value of the assets owned by the fund, more investments can be made meaning more units are issued to allow the fund manager to invest in more assets.
Investments trusts different in that they are ‘closed’ funds just like a closed private limited company. There is a set number of shares/units and the value of your investment/units is based upon market sentiment on how well your ‘company’ investment trust will perform over the coming years based upon what/where it has been invested in and the likely future/success of those investments and therefore your investment trust holdings.
