A Unit Trust fund is a collection of very different investments, all baked together into a sort-of ‘investment pie’, which then gets cut into slices so that lots of people can own a little piece.
To take a little step back…
- It’s good to have a mix of different investments. Putting all your eggs in one or two baskets can be risky. If you have shares in only one company, and that company’s shares plummet, your entire investment plummets with it. But if you invest in 40 different companies, or 3000 different companies, and one of those companies’ shares drop in value, you’re not so badly affected – you’re still invested in 39 (or 2999) other companies.
- To spread your risk further, there are different things you can invest your money in, including resources (like gold), commodities (like coffee), property, shares in companies, government bonds and more.
- But investing in so many different things is inaccessible for most of us. Getting an exact mix of the right shares and assets, especially if some of them are overseas, means you have to have lots of money and the connections to make that happen. So if you’re NOT rich enough to buy the whole pie, unit trusts are a way of banding together with a group of other people like you, and pooling together enough money to build a nice, balanced portfolio, which is shared among the group in units.
In short - a unit trust fund pools lots of people's money together and puts that money into a good range of different investments. It could be a variety of shares from different companies or a combination of, for example, shares, bonds and property. So when you buy units in the fund, you’re effectively buying affordable slices of a big (and hopefully wonderful) pie.
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