What is a unit trust?

Investing your money into the right unit trust could be a great way to expose your portfolio to shares, bonds, and other investment vehicles. Plus, if you’re a novice investor, it offers the peace of mind that your money is being managed by a trained professional.

However, there are some caveats to note before putting your money into a unit trust. Below we’ve explained what unit trusts are and how they’re managed, and highlighted some of the best performing funds on the market.

A unit trust is a fund where money from many different investors is pooled together and used to invest in a portfolio of assets. These investments are chosen and managed by a professional fund manager, who aims to ensure that the returns generated are in line with the fund’s objectives. These investments are also overseen by an independent trustee, who ensures that the fund performs in accordance with its stated aims.

When investing into a unit trust, your money will buy a weighted portion of the fund’s underlying assets. These weighted portions are known as units and, because a unit trust is an open-ended fund, there’s no limit to the cash they’re willing to accept.

This means that when it accepts money in, it creates more “units” to reflect the price of the underlying assets.

Since there’s no fixed supply of units, the price of your units aren’t influenced by demand for that trust. In theory, a wealthy investor can double the fund size overnight and it won’t affect your holdings.

Instead, you’ll only earn money if your underlying units gain value over time. Likewise, if your fund manager makes poor investment decisions, then your holdings will decrease in value.

But unit trusts aren’t designed to be traded like equities, they’re generally bought by investors who wish to make money over the long-term.

During the long-term, you’ll also earn dividends or interest from your unit trust. This can either be reinvested into the fund for more units or can be paid away to use elsewhere.

This will depend on your appetite for risk and financial goals. Below, we’ve highlighted some of the best performing unit trusts invested in UK and global equities respectively.

Performance is based on the return generated from a £1,000 investment made over a one-year period. Please note, past performance is not an indication of future performance.

To find the best investment for you we encourage you to speak to an independent financial adviser.

Funds which invest at least 80% of their assets globally in UK equities which have a primary objective of achieving capital growth.

_{Source: Lipper/Moneyfacts Investment Life and Pensions Magazine. Note: the table above is ordered by the best performance up to 1 April 2024 over the past 12 months.}

Funds which invest at least 80% of their assets globally into equities. Funds must be diversified by geographic region.

_{Source: Lipper/Moneyfacts Investment Life and Pensions Magazine. Note: the table above is ordered by the best performance up to 1 April 2024 over the past 12 months.}

Besides the unit trusts listed above, there are several highly established companies which offer unit trusts in the UK. These include US-founded asset managers Blackrock, London-based Legal & General, and Scottish investment company Abrdn among others.   

Yes, the growth on your unit trust is liable for income or capital gains tax if the unit trust is held outside of a stocks and shares ISA.

Yes, but this is only if your investment provider goes bust. This means it doesn’t offer protection if you lose money through volatile investment periods.

In cases where you have lost money due to the ill-advice of a qualified, regulated financial adviser you may be awarded compensation from the Financial Ombudsman Service.

No, to purchase your units you will need to approach your investment firm directly or through a savings platform.

This is one of the differences between an Exchange Traded Fund (ETF), and a unit trust. To learn more on ETFs read our guide.