What is a Unit Trust?

A unit trust is an arrangement where multiple parties give money to a trustee for investment.

The trust is set up with a unit trust deed. This is a legal document, where the investing parties appoint a trustee (usually a company) to manage their combined money in investments. The trustee must follow the rules set out in the unit trust deed

This arrangement lets a group of investors to get together to join their money so that they can buy or invest in assets such as property which they could not afford to buy on their own.

How does income work?

Each person who invests money in the unit trust receives shares (units) in proportion to the amount they have invested. This is like owning shares in a company.

The trustee of the trust then pays out dividends to unit holders when it makes money on investments. The amount you receive depends upon how successful the investments in the assets are, and there is always risk that you may lose money. The value of the assets in the trust may go up or down and income can vary.

Unit holders are taxed on the money they receive from the trust. This can be income generated by assets in the trust or capital (money) received when an asset is sold.

The amount of money you make or lose and the amount of tax you pay depends on the skill of the trustee in making investments in assets that produce income and/or go up in value.

Buying and Transferring Units

It is usually not hard to buy and sell units in a unit trust. The price for units is based on the value of the assets in the trust and the money they make.

Some unit trusts (those which offer units to everyone) are regulated by government financial authorities, giving some protection for investors.

Other unit trusts are private investment arrangements between individuals. These arrangements are usually not regulated, and the trust deed may have rules about how and when units can be transferred.

Setting up or investing in a unit trust

Unit trusts can be sophisticated arrangements with significant legal or tax considerations. It is essential to use a lawyer to set up a unit trust, and to seek proper financial and tax advice before investing in one.