Unit trusts

Unit trusts are a type of 'pooled investment'. A fund manager buys shares in a range of different companies and pools these in a fund; you then buy 'units' in the fund. Because the fund contains a range of shares the risk is spread. The fund is 'open ended' - the number of units rises and falls as investors buy and sell units.

The different types of funds

Each unit trust fund has a stated investment strategy, enabling you to invest according to your attitude to risk. Funds investing in 'emerging markets' or smaller companies, for example, would be considered to carry much higher risks than those investing in large UK companies.

Buying and selling units

You buy or sell unit trust units through the fund manager. Their value moves in line with the overall value of the fund, which in turn moves in line with changes to the underlying share prices in the fund.
In time you would hope that the value of your units will rise in line with the underlying share values. But if these perform badly the value of the units could fall. You may also get dividend income or interest distributions from your units, based on the dividends or interest paid by the underlying shares or other investments.

Tax

Capital gains allowance is now £10,000. The capital gains tax is now 18% on gains made over £10,000. For trustees the tax is levied at 18% on gains in excess of £5050. There is a lower rate of 10% on the first £1 Million for individuals realising gains from business assets of which they are owner, officers, or employee with more than 5% ownership of the business.