Picking a path through the unit trust maze

Article Abstract:

UK investors are faced with a wide choice when selecting a unit trust. The number of funds and amount managed have both increased in the 1990s. Investors should assess how much they want to save, for how long, and the risk level they are prepared to accept. UK equity funds providing income or growth have tended to be most popular. Funds specialising in one foreign country tend to involve higher levels of risk. Unit trusts offer flexibility for investors and can be used for a wide range of investment needs.

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A shared approach to risk

Article Abstract:

UK investors seeking an income and prepared to accept some risk can consider equity-based investments. They can use collective investments like unit trusts, or build up a portfolio of shares providing a high income through high dividend yields. Collective investments include trusts which are geared to high-yielding shares. Shares tend to yield better returns than bonds. Collective investments allow diversification and investors do not need to select a large number of shares.

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Trade too tempting for the trusts

Article Abstract:

Churning is the purchasing and selling of shares too often and tends to raise the costs of investing. High income trusts may be particularly prone to this practice since they may purchase shares for high dividends only to sell them after the dividend payment. Such a practice is likely to erode capital. UK high-income trusts tend to trade at a high level and this indicates that they cannot easily provide the income that they have promised investors.

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