# Unit Trust (UT): What It Is and How to Invest

## What Is a Unit Trust (UT)?

A unit trust is an unincorporated [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) structure that holds assets and provides profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a [trust deed](https://www.investopedia.com/terms/t/trustdeed.asp), and the investor acts as the [beneficiary](https://www.investopedia.com/terms/b/beneficiary-of-trust.asp).

### Key Takeaways

*   Unit trusts are unincorporated mutual funds that pass profits directly to investors rather than reinvest in the fund.
*   In the United Kingdom, a unit trust is regarded as similar to a mutual fund in the United States.
*   A fund manager directs the investments of a unit trust, and investors are beneficiaries of the trust.

## Understanding Unit Trusts

A unit trust is a collective investment packaged under a trust deed. The fund manager may invest in bonds or shares on the stock market, and the fund is divided into units that investors purchase. Unit trusts provide access to securities, mortgages, and [cash equivalents](https://www.investopedia.com/terms/c/cashequivalents.asp).

Unit trust structures vary by region and are available in places like Guernsey, Jersey, Fiji, Ireland, New Zealand, Australia, Canada, Namibia, Kenya, Singapore, South Africa, the U.K., the Isle of Man, and Malaysia. In Asia, a unit trust is the same as a mutual fund, while in Canada, these investments are called [income trusts](https://www.investopedia.com/terms/c/canadianincometrust.asp).

## Managing a Unit Trust

[Fund managers](https://www.investopedia.com/terms/f/fundmanager.asp) oversee the portfolio of unit trusts. [Trustees](https://www.investopedia.com/terms/t/trustee.asp) are assigned to ensure that the fund manager operates according to the fund’s investment goals and objectives. Trustees often act as [fiduciaries](https://www.investopedia.com/terms/f/fiduciary.asp), protecting the best interests of the beneficiaries. Investors in unit trusts are called unit holders and possess rights to the trust’s assets. Registrars serve as [middlemen](https://www.investopedia.com/terms/m/middleman.asp) or liaisons between the unit holders and the fund manager.

## How Unit Trusts Make Money

The value of the assets in a unit trust portfolio is determined by the number of units issued multiplied by the price per unit minus transaction and [management fees](https://www.investopedia.com/terms/m/managementfee.asp).

> **Important**
>
> In a unit trust, the price of each unit is based on the fund's net asset value (NAV) divided by the number of units outstanding.

Unit trusts allow for new contributions and withdrawals to and from the pool. When money is added to the trust, more units are created at the current unit buying price. When units are withdrawn, assets are sold to match the current unit selling price.

Fund managers make money through the difference between the buying price, or [offer price](https://www.investopedia.com/terms/a/ask.asp), and the selling price, or [bid price](https://www.investopedia.com/terms/b/bid.asp). The difference between the offer and bid prices is called the [bid-offer spread](https://www.investopedia.com/terms/b/bid-askspread.asp) and varies based on the assets managed.

## Advantages and Disadvantages of a Unit Trust

As with any investment, unit trusts come with risks and benefits.  

Pros

*   Managed by a financial professional
    
*   One unit includes investments in a diversified portfolio
    
*   No obligation or fixed investment term required
    

Cons

*   Performance of the trust relies on the fund manager
    
*   Management Fees
    
*   Principal investment is not guaranteed
    

## How Do Unit Trusts Differ From Mutual Funds?

Mutual funds are pooled investments from investors and can include [bonds](https://www.investopedia.com/terms/b/bond.asp) and equities. A unit trust differs from a mutual fund in that it is established under a trust deed, and the investor is effectively the beneficiary.

## What Is the Risk of Investing in a Unit Trust?

Investing in a unit trust carries risks similar to other investments. The unit value or income may decrease, and an investor's [principal](https://www.investopedia.com/terms/p/principal.asp) is not guaranteed.

## How Do Investors Withdraw Money From a Unit Trust?

Investors can exit the fund by selling units at the bid price. To make a [profit](https://www.investopedia.com/terms/p/profit.asp), the bid price must be higher than the offer price initially paid for the unit.   

## The Bottom Line

A unit trust is an unincorporated mutual fund that holds assets and distributes profits to individual unit owners instead of reinvesting into the fund. A unit trust is established under a trust deed, with the investor as the beneficiary. Unit trusts often include diversified portfolios and are managed by financial professionals.  

> **Article Sources**
>
> 1.  Money.co.uk. "[What Is a Unit Trust?](https://www.money.co.uk/guides/what-is-a-unit-trust)"