What Is a Unit Trust (UT)?

A unit trust is an unincorporated mutual fund structure that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a trust deed, and the investor is the beneficiary.

Understanding Unit Trusts (UTs)

A unit trust is a collective investment packaged under a trust deed. The fund manager may invest in bonds or shares on the stock market, and the fund is split into units, which investors purchase. Unit trusts provide access to securities, mortgages, and cash equivalents.

Unit trust structures vary by region but are offered in Guernsey, Jersey, Fiji, Ireland, New Zealand, Australia, Canada, Namibia, Kenya, Singapore, South Africa, the U.K., the Isle of Man, and Malaysia. In Asia, a unit trust is the same as a mutual fund. In Canada, these investments are called income trusts.

Managing a Unit Trust

Fund managers direct the portfolio of unit trusts. Trustees are assigned to ensure that the fund manager runs the trust following the fund’s investment goals and objectives and are often fiduciaries protecting the best interest of the beneficiaries. Owners of unit trusts are called unit-holders, and they hold the rights to the trust’s assets. Registrars act as middlemen or liaisons for both parties.

How Unit Trusts Make Money

The underlying value of the assets in a unit trust portfolio is directly stated by the number of units issued multiplied by the price per unit minus transaction fees, management fees, and associated costs.

Fund managers make money through the difference between buying price, or offer price, and the selling price, or bid price. The difference between the offer price and the bid price is called the bid-offer spread and depends on the assets managed.

Advantages and Disadvantages of a Unit Trust

As in all investments, there are risks and benefits associated with a unit trust.

The Bottom Line

A unit trust is an unincorporated mutual fund that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a trust deed, with the investor as the beneficiary. Unit trusts often include diversified portfolios and are managed by a financial professional.