If you’re looking for a medium to long term stock market based investment then you may want to consider a unit trust ISA.
Stocks and share ISAs work in a slightly different way to open ended investment companies (OEICs) and unit trusts but they can offer a good return over several years.
What are unit trust ISA accounts?
A unit trust ISA account is better known as a ’stocks and shares ISA’.
Stocks and shares ISAs allow you to invest your money in the stock market either in the shares of any company listed on a recognised stock exchange or into almost any fund run from the UK.
What are the main advantages of unit trust ISAs?
The main advantage of unit trust ISAs compared to other investment products is that your investments are protected from both income tax and capital gains tax (CGT).
Higher rate taxpayers don’t pay any additional tax on dividends paid within an ISA while no-one pays any Capital Gains Tax when unit trust ISA accounts are cashed in.
What to look for when searching for the top ISA unit trusts
Just as you would when you were shopping around for any investment, there are three main factors to consider:
Whether you want a tracker or a managed fund
- Fees and charges levied by a unit trust ISA
- The past performance of the investment
There are two main types of stocks and shares ISA.
A tracker fund mirrors a particular share index (such as the FTSE 100) and its value rises and falls broadly in line with the index.
A managed fund is proactively managed by specialist fund managers. The best ISA unit trust manager will buy and sell investments on a regular basis in order to maximise the returns offered by the fund.
You will generally find that you pay higher ISA unit trust prices and fees on a managed fund although the specialist fund managers can ‘beat’ the stock market with their knowledge and skill.
Tracker funds tend to be cheaper in terms of both initial charges and annual fees.
Always make sure you compare the charges on the top ISA unit trusts before you invest.
Finally, it is often worth looking at the past performance of unit trust ISAs. This shows how good (or bad) a return has been over recent years and how an ISA ranks against similar funds in the same sector.