Should You Invest in a Unit Trust?

Unit trusts allow you to invest your money alongside other investors. It offers the chance of making big profits, but are they worth the risk? Here is a guide on how they can work for you as easily as they could work against you.

Pros and cons of investing in unit trusts

You should seek advice before making any decision on any stock market linked investment, but here are some unit trust related pros and cons to think about before taking that step:

ProsCons
Can invest in multiple securities with different risk factorsOffer price needs to exceed bid price before a profit can be made
Managed by a professional fund managerOverwhelming choice of unit trusts
Can invest in multiple securities with various risk factorsCharges can be expensive
Accepts smaller deposits compared to alternative investment productsCharges can be expensive

How do you monitor your unit trust?

You can observe your investment by contacting your financial advisor or fund manager.

Alternatively, you should be able to access the website of your chosen fund management company to check the performance of your investment at any time you want.

The performance information will reveal the value of the buy and sell price of an individual unit in the unit trust. If the selling price is higher than your original buy price, then you are earning a profit.

Can you use your ISA allowance with a unit trust?

Yes, you can invest in a unit trust by using your ISA allowance. This will make your investment tax-free.

This means that your investment amount is limited to your ISA allowance every tax year – currently £20,000.

Invest by communicating with the unit trust fund management company, an independent financial advisor, or a broker.

What are the risks of a unit trust?

As each unit trust invests in several companies tied to the stock market, you could end up losing cash as a result of a downward turn.

Your fund manager will monitor your unit trust's performance to try and avoid any blips in the stock market, hence keeping your investment as profitable as possible.

Is a unit trust right for you?

To find out if a unit trust is the right type of investment for you, ask for guidance or advice from a financial adviser before making any decisions.

How do you close a unit trust?

You can talk to the fund manager directly and discuss the withdrawal of your investment.

You may have to pay an exit fee before you get your money back, Depending on the fund management company. This fee can cost you as much as 5% of your overall investment.

You will also lose money on your investment if the unit sale price is lower than when you made your investment. Make sure you arrange your withdrawal at a profitable time or risk losing money.