The variety of unit trusts available has grown at an incredible pace in the last couple of years and so has its penetration into our consciousness. You can find unit trust posters in banks and advertisements in the newspapers, magazines, and even on buses. Although an increasing number of investors are buying into unit trusts, few are doing so the right way or for the right reasons.

What is a unit trust?
A unit trust is a large portfolio of securities, managed by a professional investment manager, and subdivided into smaller 'units' for individual and household savings. When you buy a unit trust, you are in fact pooling your money with other similar investors, and putting this money under the care of a fund manager, who invests the funds on your behalf in stocks, bonds and other financial instruments.

Why unit trusts
Unit trusts marry good returns with low minimum investments. In the long term, unit trusts will generate better returns than investments such as fixed deposits and traditional insurance policies. Unit trusts are also much cheaper than most insurance-based savings schemes, making it possible for small amounts of money to be invested using sophisticated techniques.

The cost of hiring a fund manager to manage your money is very high and that would probably happen only if you have a huge sum to invest. When you invest in a unit trust, you are indirectly hiring a full-time, experienced professional to look after your investment. However, as the cost of doing that is shared by all other unit holders, you gain the benefit of owning a professionally managed product without paying an exorbitant amount.

Blue chip stocks are highly desired for their steady performance but few individual investors can buy into such stocks because of the high price. Stocks of foreign companies, which offer high growth prospects, may also not be easily accessible to everyone. With unit trusts, such problems are eliminated as your resources are pooled to enable your money to buy into investments previously not accessible to the private investor. It is also cost-effective as brokers offer significant bulk discounts to fund managers.

Unit trusts are designed to spread your money across a large number of different securities. If any one stock goes wrong or under-performs, the damage to a diversified portfolio is reduced. For you could only invest in the stocks of two or three companies, any downturn in the market would wipe out the value of your initial investment.

Unit trusts offer great accessibility to the money you have invested. Unlike investment-linked insurance schemes or fixed time deposits, you can always redeem your unit trusts without a penalty. The transaction costs for most unit trusts also do not change over time.

Why not unit trusts
Investors who like the thrills and spills of trading shares may find unit trusts a little dull. If your intention is to trade actively in unit trusts, as opposed to buying and holding, you will find the accompanying fees forbiddingly expensive.

Unit trusts are off-the-peg investment products and are not tailor-made portfolios. A unit trust investor cannot control what the fund manger invests in, as opposed to a personal portfolio of stocks.

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