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Investing 101: The basics of investing in unit trusts

by , 30 April 2015

If you're a newcomer to investing, the stock market can be a pretty daunting prospect.

You may not want to pick individual shares to invest in as you feel you lack the knowledge or you may simply not have the time to monitor your investments.

This is where unit trusts come in.

Read on to find out what you need to know about investing in unit trusts…

What are unit trusts?

Unit trusts work by taking money from hundreds or thousands of investors and pooling it together to build a portfolio of assets.

These assets include:

  • Shares;
  • Overseas shares;
  • Specific sectors
  • Bonds; and
  • Commercial property.

When you invest in a unit trust, you buy units in the fund. If new investors want to invest in the unit trust, the fund manager creates new units for these investors to buy.

The fund manager of the unit trust then uses this money to increase the overall size of the portfolio.

The price of a unit in a fund rises and falls depending on the value of its underlying portfolio.

Why invest in unit trusts?

Investing in unit trusts has a number of benefits to investing in individual shares. These include:

  • Not having to pick individual shares to invest in;
  • Instant diversification from exposure to different shares in different sectors;
  • Being able to invest without having a large lump sum to put to work on the market.

The costs of investing in unit trusts

Costs are a big factor when investing in unit trusts and something you need to pay attention to.

All funds will have an annual fee you must pay. But depending on the type of unit trust you buy into, you may also have to pay a performance fee if the fund does well.

All unit trusts have a fact sheet about them. The fact sheet will list the costs and fees that each fund charges.

So there you have it. The basics of investing in unit trusts.

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Investing 101: The basics of investing in unit trusts
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