unit trust

unit trust
1. In the UK, an investment fund shared by a large number of different investors. A unit trust is an ‘open-ended fund’, which means that the fund gets bigger as more people invest and smaller as people withdraw their money. A fund manager is responsible for the fund and makes the investment decisions. The fund is divided into segments called ‘units’. Investors take a stake in the fund by buying these units, the price of which will vary as the value of the investments the trust has invested in increase or decrease. The Financial Services Authority (FSA) authorizes firms that sell unit trusts, most of which belong to the Investment Management Association (IMA). Investors should always look carefully at the charges associated with unit trusts. Basic-rate tax is deducted from the dividends paid by unit trusts and capital gains on the sale of a holding are subject to capital gains tax. In the USA unit trusts are called mutual funds.

2. A trust scheme (also called a unit investment trust) in the USA in which investors purchase redeemable trust certificates. The money so raised is used by the trustees to buy such securities as bonds, which are usually held until they mature. Usually both the number of certificates issued and the investments held remain unchanged during the life of the scheme, but the certificates can be sold back to the trustees at any time.