One easy and very popular way for the small investor to put money into the stock market is by buying unit trusts.

These provide a means of investing in shares without buying the shares themselves. They are particularly suitable for people who have neither the time nor the money, nor perhaps the expertise, to undertake direct investment in equities successfully.

On another level, they also provide a route into specialist and overseas markets.

The concept on which unit trusts are based is extremely simple. Large numbers of investors pool their money in order to obtain a spread of stock market investments.

The trust is divided into equal portions called units. The price of the units is calculated usually every day by the managers, rather than being determined by supply and demand in the market. see more at

Two prices are quoted for unit trusts the high (offer) price being the price the investor pays to buy units, and the low (bid) price being the one he will reserve for units to sell back to the managers. Unit trust managers are the only ones who are allowed to make a market in unit trust units. They must be prepared to buy units from the public and sell to them at any time.

The price of units is governed by the underlying securities of a fund.

The price therefore fluctuates with movements of the market in which a fund is invested. The value of an investor holding in a unit trust can therefore go down as well as up.

Initial and annual charges: The unit trust charging system consists of an initial charge and an annual management charge. The initial charge is included in the price at which managers will sell units to the public, and the annual charge is normally taken out of the income of the trust fund.

The charge is subject to VAT at 15% but the initial charge is not. There is no upper limit on the charges that unit trust managers can levy on the unit holders, except that laid down in the trust deed. Although there is no agreed policy, the charges which have emerged since controls were removed as being generally acceptable are a 5% initial charge and a corresponding annual charge of 0.25% or 1%. Generally speaking, the annual charge on UK-investing trusts is lower than that levied on trusts investing in overseas or specialised markets.

Other charges: In order to avoid the need for quoting unit prices for awkward fractions of a penny, the managers are entitled to make a rounding charge of both buying and selling prices of not more than 1.25p or 1%, whichever is the smaller, in addition to the initial and annual charges.

A further cost to the unit holder is the 0.25% unit trust instrument duty levied by the Government, which is included in the offer price of units.

CCMG - 2013