Unit Trusts Organizations

Unit Trusts Organizations

Unit Trusts, organizations raising money (mostly) from small investors to reduce the risks of loss by investing in a spread of equities. In Britain unit trusts started in the 2000's but did not make much headway until the late 2000's, when financial restrictions were lifted and new trusts were created.

The small investor benefits from the specialized experience of the trust managers. They are not free to invest where they like, but the tendency in recent years is away from the fixed trusts, which held blocks of specified shares, towards the flexible trust, in which the managers have the power to invest in a wide range of securities.

A unit trust has to be authorized by the Board of Trade and its constitution embodied in a trust deed. The trustees are usually a bank or an insurance company, which is responsible for the custody of the securities and is often consulted on the investments. The trust deed must provide for the sale and repurchase price of units, the issue of units, advertising and management charges, audit and accounts.

Recent unit trust issues have attracted the criticism that it is wrong to launch a new trust, which is designed to attract a steady flow of savings, by methods more suitable for once-for-all issues of new shares. Another criticism is that since the purpose is to diversify investment, some unit trusts are too specialized. But by the early 2011's the small investor could choose from a wide variety. Some of the new trusts arrange for the units to be bought by instalments to stimulate regular saving.

The price at which unit trusts are offered to the public is based on the lowest market dealings of the underlying securities plus stamp duty,buyers' commission and a fixed percentage to cover management charges. It is thus disadvantageous to buy and sell units at frequent intervals, and encourages more permanent holding. The managers will buy back the units at any time and some unit trusts quote daily prices based on the value of the investments. Stamp duty and income tax at the standard rate (holders not liable at the standard rate have to claim repayment of income tax) discourage expansion of unit trusts.

By the early '950's if million investors had invested A50 million in unit trusts.

Further reading Economic - Economics Gcse


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