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Unit Trust

A Unit Trust is an investment plan which enables all investors to contribute their funds collectively. These funds are then invested in various investment opportunities and the investors enjoy great returns. The funds which are pooled and invested are divided into units and are valued on the bases of the market value. In Unit Trust, you can get units. So the number of units that you have, will determine your share of the income and also the right to hold voting power. So, in the case of the Unit Trust, the Trust property is divided into a number of units (shares). Just as a share holder subscribe a share in the company, thus in the same way, in a Unit Trust, the beneficiaries subscribe their share which are called as units.

A Unit Trust cannot be considered as a separate legal entity, as compared to an individual or a company. A Unit Trust can be considered as a relationship in which the trustee is compelled to hold properties for the benefit of the unit holders. The trustee has to obey the trust deed and has to act in the best interest of the beneficiaries. In case of a Unit Trust, it is the fund manager who takes the responsibility of making professional investment decision and it manages the fund operations. The investor’s rights and interest are protected by the trustee by ensuring that fund manager acts according to the regulatory guidelines and the requirements as mentioned in the trust deed. The trust deed is basically a sort of a legal document containing specifications of the Trustee’s responsibility and the fund manager. Also, the deed specifies the rights and liabilities of the investor.

There are basically three types of unit trust funds. An investor can choose, based on his investment needs. The three types are as follows:

1. Income Funds:

Income funds are mainly invested in fixed income securities. Compared to equity funds, income funds have a lower level of risk. The Unit Holders are paid dividends on a yearly basis.

2. Balanced Funds:

Balanced funds are those funds which invest in equity as well as fixed income securities. The level of risk is high in balanced funds, when compared to income funds. But in the long run, balanced funds do provide high returns in the form of capital appreciation and dividend payments.

3. Equity funds:

Equity funds will invest in the stock market. A high level of risk is involved in equity funds and there is an expectation of long term high return provision.

A Unit Trust is a low-risk and low-return investment plan. Since, Unit Trust incur a lower annual operating expense, most investors prefer to Unit Trust rather than mutual fund. In Unit Trust, there exists an investment manager who knows exactly how to manage funds since they are professionals in their subject. By investing in a Unit Trust, one gets an opportunity to diversify his risks through an investment portfolio which otherwise would not be possible to achieve this through personal investment. The investor enjoys the services of the professional fund manager. There is an easy access to liquidity. You have affordable investment amounts opportunities. In the case of Unit Trust, one can conveniently cash your investments by just submitting your certificate to the manager. In order to sell your units, all you have to do is simply hand over the completed “Redemption Form” to the fund management company. The form is available at the back of your unit certificate. The Unit Trust fund enables small and large investors to put their savings in a common fund and thus take advantage of the various investment opportunities in order to earn good returns.