Unit trusts let you pool money with other investors to own a professionally managed basket of assets. If you’re deciding whether they suit your plan, it helps to see how they work and what you gain in return for the costs and structure.
Below, we unpack the main benefits, the key trade-offs, and practical tips for choosing the right fund and using it well—so you can make a confident, informed decision.
How unit trusts work and key features
A unit trust is a collective investment scheme that gathers investors’ money and invests it in a portfolio of assets such as shares, bonds, property, or cash. You buy “units” at a price based on the fund’s net asset value (NAV), typically calculated daily. As the underlying holdings move in value, the unit price moves too, and you can buy or sell at the prevailing price.
Because the structure is “open-ended,” the manager issues or cancels units as investors enter or exit, which helps maintain liquidity. Professional managers handle research, selection, and rebalancing according to the fund’s stated mandate—income, growth, balanced, or more specialized strategies. This format lets you access markets and strategies that might be costly or complex to build on your own.
Reporting is straightforward: factsheets, audited statements, and clearly disclosed fees help you see what you own and what it costs. Minimum investment amounts are often modest, and many funds allow regular debit orders for disciplined saving. Understanding these mechanics is the backdrop for weighing the advantages and disadvantages of unit trusts.
Core advantages for everyday investors
Diversification is the standout benefit. Even a small contribution buys exposure to dozens or hundreds of securities, spreading risk across sectors and regions. That reduces the impact of any single holding and helps smooth the journey compared with building a concentrated, DIY portfolio.
There’s also the convenience of professional management. Portfolio construction, trading, corporate actions, and ongoing research are handled for you, saving time and effort. Many funds offer automatic reinvestment of distributions and flexible contribution options, which supports compounding and consistent, long-term investing without constant oversight.
Liquidity and choice add further appeal. Most unit trusts trade at daily NAV, making it straightforward to add or withdraw money. You can select from index-tracking funds for market exposure at low cost or active funds seeking outperformance in specific niches. This breadth means you can assemble a mix aligned to your goals, risk tolerance, and timeframe when comparing the benefits and drawbacks of unit trusts with holding individual shares.
Trade-offs and how to manage them
Costs matter. Management fees, trading costs, and the total expense ratio (TER) all come out of returns. Some active funds may also have performance fees. The remedy isn’t to avoid funds, but to be fee-aware: compare TERs, check for any performance-fee hurdles, and consider low-cost index funds for core exposure while using active managers selectively where they have a clear edge.
Control is different from DIY investing. You don’t pick individual securities, and a manager’s style may go in or out of favor. Markets also move daily, so values can fluctuate. The practical approach is to choose funds with mandates you understand, align them with your time horizon, and use regular contributions to smooth entry points—helping you stay invested through normal market cycles.
Tax and administration are considerations. Distributions may be taxable in your hands, and selling units can trigger capital gains events. Recordkeeping is usually simple, but it’s worth using tax-efficient accounts available in your jurisdiction and reinvesting distributions to harness compounding. Taken together, these steps help you balance the strengths and weaknesses of unit trust funds within a sensible, long-term plan.
In Conclusion
Unit trusts offer accessible diversification, professional management, and liquidity—powerful building blocks for many portfolios. The main trade-offs are fees, less granular control, and normal market movement. By matching funds to your goals, timeframe, and cost preferences, they can serve as a solid core or complement to other holdings.
If you’d like guidance on selection, costs, and portfolio fit, speak to an expert on financial solutions through our team at AVB Solutions. We’ll help you choose and combine funds in a way that aligns with your goals and keeps you confident along the way.