Thursday, 9 January 2014

Which Is The Better Option For You – Unit Trust Or Investment Trust?

Posted at  09:03  |  in  Finance

With the large number of people who are unemployed or laid off or fired from their jobs, there are increasing numbers of investors in the nation. In fact, 2014 will see a huge number of investors turning to investing their hard-earned dollars in lieu of lump sum yields. But before selecting an investment fund, don’t you think that you should initially clarify all your objectives and requirements and then select a fund that will be the most suitable according to your financial needs? It’s always worth considering different types of investment funds before investing to make that the one that you choose offers the best return with time. If your mind is oscillating between investment trusts and unit trusts, the concerns of this article might as well help you take a measured and an informed decision.

Unit Trusts – A look into some features

This is a kind of trust where the holder of units is entitled to share in the assets of the trust in accordance with the number of units that are being owned. Control over unit trusts is exercised by managers, are subject to approval by Trustees within the terms of the Trust Deed. Some features of Unit Trust are:

1. Open-ended: All purchase and sales are dealt for cash and are transacted to and from the managers. The managers have to sell some of those underlying assets to meet the constant demand for cash.

2. Dealing costs are front-end loaded: The dealing costs are front-end loaded with a bid-offer that is spread on the dual-priced funds and an initial charge on the single-priced funds.

3. Net Asset Value: The price of a unit is usually based on the NAV or the Net Asset Value of the investments.

4. Units are treated equally: Unit Trusts can only have a single class of unit and all such units are treated equally.

Investment Trusts – A look into some features

A public limited company whose stocks and shares are listed on the Stock Exchange offer investment trusts. The Management is comprised of the Directors, subject to the Memorandum and Articles of Association. Here are some features.

1. Close ended: Shares and stocks of the company are dealt on a secondary market. In the secondary market, there’s no such cash for in or out of the fund.

2. Price is set by market forces: The price of a share is usually laid down by normal market forces and not by any formula.

3. Shares are bought on Stock Exchange: The shares are sold and bought on the Stock Exchange and so the costs include stamp duty, PTM levy and brokerage.

4. Issue different classes of share: The investment trusts can issue different classes of shares including long-term borrowing, with the concept of gearing.

Among both the kind of investment options, the investment trusts outperform the unit trusts as they allow the managers to take a long-term view. They don’t require selling their assets when investors sell their shares. However, you should take into account the pros and cons of each option before investing your funds in any type of trust.

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Jimmy Simond is founder of he share his immense knowledge of finance in this blog. You can follow him on Google+.


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