DO YOU KNOW ...WHAT IS A UNIT TRUST?

A unit trust is a financial vehicle through which individuals may invest their money; in other word pools the savings of a number of investors who share a common financial goal. The idea behind unit trust is better investment through collective investing. That is to say that pooling the investments of many investors, individuals and institutions. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them.

Advantages of investing in a unit trust:-

a. Professional management at a very low cost
b. Diversification - DCAP
c. Liquidity
d. Ease of transaction
e. Capital appreciation/income stream

The operation of a unit trust may be best explained by outlining its similarities with the operation of a bank, with which most individuals are familiar.
Many individuals deposit money in the banks, for which they receive interest. These individuals expect complete liquidity where they must be able to withdraw their deposits in cash at any time. The banks employ professional managers to look after the deposits. The deposits are invested. These managers lend the deposits to other individuals requiring funds and a host of other profit generating facilities of the banks.

Similarly, unit trust holders wish to put their money to generate higher returns. The goal of all investments is to make money more productive, either through producing income or growth. Unit trust holders have liquidity because their units can be readily converted into cash at any time. By investing in unit trusts, it allows them to engage professional fund managers at a low cost to the individual investors. These managers diversify the investible funds in many different securities and other approved channels to spread the risk.

The unit trust is constituted through a document known as a deed which brings together and binds the various parties to the deed:

a) The trustee - holds the assets of the trusts on behalf of the unit holders.
b) The manager - the promoter of the scheme and provides investment and
administrative expertise and markets units to the public
c)The unitholders - provide the funds for investment and expect to receive the
benefits derived from the investment.

The effect of dividing the beneficiaries' interest in the trust into units is that their interest is quantified into discrete portions.

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