A fund divided into units

A unit trust is an open-end fund which invests the pooled money of many investors.

The fund is divided into segments called 'units'. Investors take a stake in the fund by buying these units. The price of a unit is based on the value of the investments in which the trust has invested.

As a Unit Trust is an 'open-end fund' the number of units increases and reduces as investors make injections and withdrawals from the fund.

Charges

• Spread charge - this is a charge you pay when you invest in the fund. The charge is paid through a differential in the price of the units. Typically the price for units you buy could be 5% greater than their sale price.
• Exit charge - some unit trusts have no initial charge but levy an 'exit charge' instead when you withdraw your money.
• Annual management charge - with all unit trusts, the company running them takes a yearly management fee direct from the investment fund.

You need to find out about all the charges before you decide which one to buy. Charges can have a major impact on the performance of a unit trust.