Practice Areas

Unit Trusts and their Benefits

Units Trust Deed

 

Understanding Unit Trusts and Their Benefits for Investment Holdings

What is a Unit Trust?

A unit trust is a pooled investment vehicle that allows multiple investors to combine their capital to invest in a diversified portfolio of assets, such as equities, bonds, and other securities. Managed by professional fund managers, unit trusts operate under a trust structure where the investments are held on behalf of the investors, who are issued “units” in proportion to their contributions. The value of these units fluctuates based on the performance of the underlying assets.

How to Use a Unit Trust for Investment

Investing in a unit trust involves the following steps:

  1. Selecting a Unit Trust – Investors choose a unit trust based on their financial goals, risk tolerance, and investment horizon. Unit trusts are categorized by asset class (e.g., equity, fixed income, or balanced funds) and geographic or sector focus.
  2. Purchasing Units – Investors can buy units directly from the fund manager or through financial intermediaries, such as banks or investment platforms. The price of units is based on the fund’s net asset value (NAV) per unit.
  3. Holding and Managing the Investment – Once invested, the fund manager oversees the portfolio, making investment decisions to optimize returns. Investors do not have to manage individual securities but instead benefit from professional fund management.
  4. Reinvesting or Withdrawing – Investors can choose to reinvest income distributions to purchase more units or redeem their units to realize returns. Redemptions are typically processed at the prevailing NAV.

Benefits of Using a Unit Trust for Investment Holdings

  1. Diversification – Unit trusts provide exposure to a broad range of securities, reducing risk associated with holding a single asset.
  2. Professional Management – Fund managers make strategic investment decisions, leveraging expertise and research to enhance portfolio performance.
  3. Affordability and Accessibility – Investors can gain exposure to a diversified portfolio with relatively small capital contributions compared to direct stock or bond investments.
  4. Liquidity – Units in a unit trust can typically be redeemed at the NAV, offering investors flexibility to access their funds.
  5. Regulated and Transparent Structure – Unit trusts operate under regulatory oversight, ensuring investor protection and transparency in fund operations.
  6. Passive Income Potential – Some unit trusts distribute dividends or interest income, providing a potential stream of passive income.

By leveraging unit trusts, investors can achieve their financial objectives with the advantage of diversification, professional management, and ease of access to global markets.