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Please be aware of the following risk warnings: The past performance of an investment is not a guide to its future performance.

The value of investments, and any income from them, may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested.

Tax reliefs are those currently available and are subject to change.

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Unit Trusts & OEIC's.

What are they?

A unit trust is an investment fund where groups of investors benefit from the greater security and better economies of scale than if they had invested individually in company shares.

A similar investment type OEIC (open ended investment company) is another, slightly different form of collective investment.

Unit trusts, although there are many thousands of them still in existance, have now been superceded by OEICs. OEICs have a much simpler structure than unit trusts. An OEIC is open-ended so that more shares are created as more and more investors invest.

Eventually nearly all collective funds in Europe will be OEICs.

Unit Trusts

A unit trust has lost popularity because of its complexity. The fund's trustee is usually a financial institution authorised by the UK Financial Services Authority (FSA). The trustee is the custodian of the trust and makes sure that the fund is run in accordance with FSA regulations, the trust deed, and other particulars. Each 'unit' of a unit trust represents an equal fraction of the fund with an equal claim on the fund's assets.

Units are bought from the fund managers and when no longer wanted, sold back.

Unit trusts are “open-ended” investment funds because the fund managers can 'create' or 'cancel' units and the fund is not closed after a time.

The number of units allocated to an investor is calculated by dividing the value of his or her investment by the unit 'offer price'. The value of the units goes up and down in line with the performance of the fund's share portfolio.

There are two main classes of unit trust units.

• Income or distribution units that pay interest or dividends. An income- producing fund will pay a dividend to unit holders on set dates.
• Accumulation units that compile the dividends and interest within the fund and add to the fund's worth.
  
  

Types of unit trust

Growth Funds

Most growth funds are in the higher-risk category and are likely to pay smaller dividends.

Income Funds

Corporate bond and gilt funds can generate resonable levels of income although capital growth is more likely to be low and the funds are affected by changes in interest rates.

Growth and Income Funds

Equity funds will provide a source of growing income which may outperform fixed deposits over the long term.

Capital Gains Tax

Unit trusts are not liable for Capital Gains Tax on their internal realised gains. Investors are personally potentially liable for Capital Gains Tax on the gains realised on disposal of their units. A fund switch is treated as a disposal for Capital Gains Tax purposes.

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