What you should know about unit and investment trusts

Unit and investment trusts both exist to fill certain needs; choose which one fits your lifestyle and goals.

09:59 08 November 2013

When we invest, we are concerned with the outcome of our investments or the performance of them.  The performance is what we use as a comparison to determine which companies to select. When considering trusts, investment trusts regularly perform better than unit trusts. Here are a few things to remember about unit and investment trusts.

• Unit trusts tend to be less volatile, so those who desire a more stable trust will most likely prefer unit trusts. It appears that the trusts do a little better for short term results such as three-year or five-year stints.

 

• For long term financial growth goals, investment trusts provide better returns than unit trusts. Part of the success for investment trusts are that they are able to use more time in order to reach a goal.

 

• Due to the shorter length of time, unit trusts are limited in that they can only invest in assets which are easily sold off, such as shares. Sometimes in order to sell some shares that aren’t doing well, the fund manager would need to also sell some of the better shares.

 

• Investment trusts are able to retain up to 15 per cent of their revenue in a sort of reserve which means extra financial security for investors. Even if the company doesn’t do as well as expected, most times the reserve allows the company to maintain payment of dividends.

 

• Unit trusts distribute their revenue annually, and therefore have no cushion of protection if the following year does not produce the expected yields.

 

• Both unit and investment trusts are subject to market conditions, but for long-term savings the investment trusts are set up to weather potential issues more successfully than unit trusts.

Unit and investment trusts are both viable ways to increase wealth, but choose which seems best for your needs.