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((Short description|Form of collective investment))
((for|UIT, a U.S. fund type|Unit investment trust))
((Multiple issues|
((Cleanup|date=August 2011))
((Refimprove|date=September 2007))
))

A '''unit trust''' is a form of [[Collective investment scheme|collective investment]] constituted under a [[Trust (law)|trust]] deed.
A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on the trust, it may invest in [[securities]] such as [[Share (finance)|shares]], [[Bond (finance)|bond]]s,  [[Gilt-edged securities|gilt]]s,<ref name="money.co.uk"/>  and also properties, mortgage and [[Cash and cash equivalents|cash equivalents]].<ref name="Investopedia">((cite web|title=What is a 'Unit Trust - UT' |url=http://www.investopedia.com/terms/u/unittrust.asp |website=Investopedia |access-date=12 October 2017))</ref> Those investing in the trust own "units",  whose price is called the "[[net asset value]]" (NAV). The number of these units is not fixed and when more is invested in a unit trust (by investors opening accounts or adding to their accounts), more units are created.<ref name="money.co.uk">((cite web|title=What is a unit trust?|url=https://www.money.co.uk/guides/what-is-a-unit-trust.htm|website=money.co.uk|access-date=11 October 2017))</ref>

In addition to the UK, trusts are found in [[Fiji]], [[Ireland]], the [[Isle of Man]], [[Guernsey]], [[Jersey]], New Zealand, Australia, Kenya, Uganda, Tanzania, Namibia, South Africa, Singapore,<ref>Lee, Boon Keng and Ong, Andy. ''Personal Financial Planning in Singapore''. INS communications PTE LTD, 1997. p. 120, ((ISBN|981-00-9422-1)).</ref> Malaysia and [[Zimbabwe]].

==History==
The first unit trust was launched in the UK in 1931 by [[M&G]] under the inspiration of [[Ian Fairbairn (rower)|Ian Fairbairn]].<ref>((cite web|title=Notes & Comments, The Fixed Trust|url=https://news.google.com/newspapers?nid=2507&dat=19310423&id=cadAAAAAIBAJ&pg=1648,8004709|publisher=[[The Glasgow Herald]]|access-date=8 March 2017|page=12|date=23 April 1931))</ref>
The rationale behind the launch was to emulate the comparative robustness of US [[mutual fund]]s through the 1929 Wall Street crash.  The first trust called the 'First British Fixed Trust' held the shares of 24 leading companies in a fixed portfolio that was not changed for the fixed lifespan of 20 years.  The trust was relaunched as the M&G General Trust and later renamed as the Blue Chip Fund. <ref name="mandg">((cite web|title=M&G Investments. History|url=http://www.mandg.com/en/corporate/about-mg/mg-history/|website=mandg.com|access-date=12 October 2017))</ref>

By 1939 there were around 100 trusts in the UK, managing funds in the region of £80 million.<ref>For more details of the trust origin of the unit trust and its relationship with American mutual funds, see ((cite book |last1=Sin |first1=Kam Fan |date=1998 |title=The Legal Nature of the Unit Trust |publisher=Clarendon Press |isbn=0-19-876468-5))</ref>

==Different investment structures==
There are a number of [[collective investment scheme]]s — Unit Trust, [[Open-ended investment company]], [[Mutual fund]], [[Unit investment trust]], [[Closed-end fund]] — with similar objectives and/or names, sometimes confused with each other. Variations include [[Open-end fund|open-ended]] and [[Closed-end fund|closed-ended]], [[Trust law|business trust]] or management company/corporate structure, [[Active management|Actively managed]] or un-managed.

In the UK there are generally two types of open-ended, actively managed investment companies:<ref name="Russell-2007-10-12">((cite book|last1=Russell|first1=Ray|title=An Introduction to Mutual Funds Worldwide|date=2007|publisher=John Wiley & Sons.|pages=10–12|isbn=9780470510193|url=https://books.google.com/books?id=pRJz6EqAwAoC&q=unit+trust+|access-date=12 October 2017))</ref>
*Unit Trusts - which are organized as a  [[Trust law|business trust]] where the legal owner of the underlying assets is the trustee and the investors/unit-holders are beneficiaries.  Unit Trusts have a "[[bid–offer spread]]", i.e. the investor pays more to buy units of the trust than they receive when they sell them—a difference that can vary and goes to the trust management as a profit.<ref name="Russell-2007-10-12"/>
*[[Open-ended investment company|Open-ended investment companies]] - which are legally [[company|companies]], not trusts. They have a single price for both purchase and sale of units (no [[bid–offer spread]]), making them similar to European [[SICAV]]s and U.S. [[mutual fund]]s.<ref name="Russell-2007-10-12"/>

In Western Europe there are

*[[SICAV]] - (''société d'investissement à capital variable'') is an open-ended [[collective investment scheme]] common in Western Europe, especially [[Luxembourg]], [[Switzerland]], [[Italy]], [[Spain]], [[Belgium]], [[Malta]], [[France]] and the [[Czech Republic]].<ref>[http://www.epravo.cz/top/clanky/akciova-spolecnost-s-promenlivym-zakladnim-kapitalem-sicav-pravni-a-danova-specifika-90311.html Akciová společnost s proměnlivým základním kapitálem (SICAV) – právní a daňová specifika] EPRAVO.CZ| 8.4.2013</ref>
*SICAF - (''Société d'Investissement À Capital Fixe'') is similar to a closed-end fund.<ref name="seic">((cite web|title=Luxembourg SICAV / SICAF|url=https://www.seic.com/IMS/SEI_Lux_SICAV_EU.pdf|website=seic.com|access-date=12 October 2017|date=2012))</ref>

In the United States

*[[Mutual fund]]s - in the form of open-ended, actively managed funds have traditionally been a very popular form of collective investment. Like Unit Trusts, their investors are unit-holders, and there are not a finite number of units in issue. Units could be  increased or decreased depending on the net sales and repurchase by existing unit holders.  Unlike Unit trusts they are limited liability companies where investors are like shareholders in a company.<ref name="HKEX">((cite web|title=Frequently Asked Questions. Chapter 6 Products - Securities Market. 6.8.2 What are the differences between mutual funds and unit trusts? |url=https://www.hkex.com.hk/eng/global/faq/unit%20trust.htm |website=HKEX |access-date=11 October 2017 |date=2009-08-31))</ref> While open-ended mutual funds do not have a [[bid–offer spread]], they may have "loads" (sale charges) and other [[Mutual fund fees and expenses|fees]]  paid to fund management.
*[[Closed-end fund]]s - a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund.<ref>Lemke, Lins and Smith, ''Regulation of Investment Companies'', §9.05 (Matthew Bender, 2014 ed.).</ref> Even more different from a unit trust, investors own shares rather than units. They buy and sell the shares on the stock market, rather than from the fund itself. New shares are not created by managers to meet demand from investors.<ref name="SECClosedEndFund">((Cite web|title=Closed-End Fund Information|url=https://www.sec.gov/answers/mfclose.htm|website=SEC.gov|publisher=[[U.S. Securities and Exchange Commission]]|date=2013-01-16|access-date=2015-12-16))</ref>
*[[Exchange-traded fund]]s (ETFs) - also traded in the market and not bought and redeemed from the fund, but unlike closed-end funds the price is not  completely determined by the valuation of the market, and trades in a narrow range very close to its net asset value, because the structure of ETFs allows major market participants to redeem shares of an ETF for a "basket" of the fund's underlying assets.<ref>((Cite news|url=http://www.investopedia.com/ask/answers/052815/what-difference-between-etfs-net-asset-value-nav-and-its-market-price.asp|title=What is the difference between an ETF's net asset value (NAV) and its market price?|last=Investopedia|date=2015-05-28|newspaper=Investopedia|language=en-US|access-date=2016-12-10))</ref> (More than US$2 trillion were invested in ETFs in the United States between when they were introduced in 1993 and 2015.)
*[[Unit investment trust]] - an exchange-traded fund with a fixed (unmanaged) [[portfolio (finance)|portfolio]] of [[security (finance)|securities]] and a fixed life-span before it liquidates and distributes its [[net asset value]] as proceeds to the unit-holders.  Despite its similar name and being a trust, it differs from a unit trust in being closed-end, un-managed, and having a termination date.<ref>Lemke, Lins and Smith, ''Regulation of Investment Companies'', §4.03 (Matthew Bender, 2014 ed.).</ref>

==Structure==
* Unitholders are the owners of trust property and the trustee administers the trust.  
* The trustee has a fiduciary duty to ensure that unit holders are treated equally.  
* The fund manager is appointed by the trustee to manage the investment of the trust assets.  
* The fund manager runs the trust for a management fee and sometimes for a performance fee.
* Trust profits are either distributed to unitholders as income or reflected in the unit prices as capital gain if unrealised.
* The trustee ensures the fund manager keeps to the fund's ''investment objective''.
* The trustee or fund manager can appoint a custodian to safeguard the trust assets.
* The trustee is required to maintain a registry to allow the transaction of units. 

===Open-ended===
Unit trusts are open-ended; the fund is equitably divided into units which vary in price in direct proportion to the variation in value of the fund's ''net asset value''.  Each time money is invested, new units are created to match the prevailing unit buying price; each time units are redeemed the assets sold match the prevailing unit selling price.  In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets. Unit trust trades do not have any commission.

===Bid–offer spread===
The fund manager makes a profit in the difference between the purchase price of the unit or '''offer''' price and the sale value of units or the '''bid''' price.  This difference is known as the [[bid–offer spread]].  The bid–offer spread will vary depending on the type of assets held and can be anything from a few basis points on very liquid assets like UK/US government bonds, to 5% or more on assets that are harder to buy and sell such as property. The trust deed often gives the manager the right to vary the bid–offer spread to reflect market conditions, with the purpose of allowing the manager to control liquidity.  In some jurisdictions the bid–offer spread is referred to as the "bid–ask spread".

To cover the cost of running the investment portfolio the manager will collect an [[annual management charge]] or AMC.  Typically this is 1 to 2 percent of the market value of the fund. In addition to the annual management charge, costs incurred in managing and dealing the underlying assets will often be borne by the trust. If this is the case, the provider will extract revenue equal to the AMC without incurring any expenses managing the fund. This makes the charges in such vehicles lack transparency.

===Mechanics===
In a unit trust, units are managed within what is known as the "Managers Box". The Box Manager of the fund will make a decision at each valuation point whether or not to Create (add) or to Liquidate (Remove) units based on the final net sales and redemptions prior to the next valuation point where the Fund is priced on a "Forward Basis", or at the actual valuation point where the fund is priced on an Historic basis. Forward pricing is the most common.

The underlying value of the assets is always directly represented by the total number of units issued multiplied by the [[unit price]] less the transaction or management fee charged and any other associated costs.  Each fund has a specified ''investment objective'' to determine the management aims and limitations.

A unit is created when money is invested and cancelled when money is divested.  The ''creation price'' and ''cancellation price'' do not always correspond with the ''offer'' and ''bid'' price.  Subject to regulatory rules these prices are allowed to differ and relate to the highs and lows of the asset value throughout the day.  The trading profits based on the difference between these two sets of prices are known as the box profits.

===OEIC conversion===
In the UK many unit trust managers have converted to [[Open-ended investment company|open-ended investment companies]] (OEICs) in recent years.  OEICs normally have a single price for purchase and sale, although recent regulatory change now permits dual pricing too, in line with unit trusts.

The motivation for conversion is often cited as a simplification and precursor to offering funds Europe-wide under EU rules.

More cynical observers may have noted that there is increased latitude to hide charges in the OEIC [[Dilution Adjustment]] (more commonly referred to as "Swinging Single Price") whilst maintaining the veneer of simplification ((Citation needed|date=October 2008)).

=== Taxation ===
In the United States, unitholders of Unit Trust Funds are often treated as partners for tax purposes.<ref>((Cite web|title=Help - Research Glossary: S through Z|url=https://www.fidelity.com/help/research/learn_er_glossary_4.shtml#unittrustfund|access-date=2021-02-13|website=www.fidelity.com))</ref> Much like investments in [[Master limited partnership|MLPs]], unitholders are typically issued a K-1 rather than a Form 1099 at the end of each tax year.

==Ways to invest==
In the UK, units can be bought direct from the fund manager, held through a nominee account or through an [[individual savings account]] (ISA). It is also possible to invest via fund platforms.

From 1 January 1987 to 5 April 1999 it was also possible to invest via a [[personal equity plan]] (PEP) however these were discontinued and all PEP accounts automatically became stocks and shares ISAs on 6 April 2008.<ref name="PEP">((cite web|title=Personal Equity Plans|url=http://www.hmrc.gov.uk/stats/peps/pep_b_1.htm|website=hmrc.gov|archive-url=https://web.archive.org/web/20110525013322/http://www.hmrc.gov.uk/stats/peps/pep_b_1.htm|archive-date=25 May 2011))</ref>

==See also==
*[[Collective investment scheme]]
*[[Open-ended investment company]]
*[[Investment trust]]

==Further reading==
*Sin, Kam Fan (1998) '''The Legal Nature of the Unit Trust'''. ''Clarendon Press'' ((ISBN|0-19-876468-5))

== References ==
===Notes===
((reflist|group=Note))

===Citations===
((reflist))

==External links==
* The [http://www.fca.org.uk/ FCA] regulates unit trusts in the UK under their CIS (Collective Investment Scheme) rules.
* The [https://web.archive.org/web/20150529174334/http://unittrust.net/ Unit Trust Website on the Net]

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