Many people searching for a good way to invest their money will consider a unit trust. But what are unit trusts and how do you choose the best unit trust investments.
The best performing unit trusts generally provide a better return than traditional savings or bank accounts although there is invariably an element of risk when you consider this type of investment.
What are unit trusts?
Unit trusts are a type of shared investment. When you invest in this type of product you buy units in a fund alongside thousands of other investors.
Your cash is then invested in a broad spread of shares across world stock markets. As unit trust prices rise and fall the value of your investment will rise and fall accordingly.
You can generally invest in unit trust funds with as little as £500 or £25 per month.
With around 2,000 unit trusts available in the UK there is a huge choice when deciding where to invest. However, when selecting unit trust funds, there are three main factors to consider:
- The fees, charges and prices unit trust funds charge
- The amount of risk you want to take
- Unit trust performance
Firstly, different providers levy different fees and charges when you invest in their unit trust funds.
You will generally pay an annual fee to the unit trust provider (anywhere between 0.25 and 2 percent) and you may also pay an ‘initial charge’ on a lump sum investment. When comparing investments make sure you take account the prices unit trust funds charge to invest.
Secondly, you will have to decide what level of risk you wish to take with your investment.
Many unit trusts invest in a wide range of blue chip British companies whilst others will invest in emerging markets or in foreign stock markets.
With unit trust daily prices changing all the time, taking on a riskier investment may make you a better return but it is also more likely to lose you money.
Finally, it is worth comparing unit trust performance. There are two ways to do this.
Firstly, you can look at the percentage investment return that a unit trust has generated over a five or ten year period.
Secondly, you can compare the best unit trusts by ranking. The ‘quartile rank’ measurement shows the fund’s performance over the last five years compared to others in its sector. The best performing unit trusts will appear in the first or second quartiles.
