Unit trusts and OEICs (Open Ended Investment Companies) are a form of collective investment in which the investor’s money is combined and then invested on your behalf. The investments can take the form of:

• Shares
• Gilts
• Bonds
• Cash deposits

In order to make these investments the trust will combine the money from the investors to create the fund. Unit trusts and OEICs can take several forms such as income funds that produce an income in the form of dividends or interest, growth funds which generate capital growth and specialist funds that invest in specific sectors.

Unit trusts are often believed to under perform and have high charges. For example there is usually a difference between the buying and the selling price, typically 5% as well as a 1% annual management charge. However they provide a number of benefits such as offering possible high returns to fixed deposits in the long term. They can also offer a diverse array of asset backed investments and provide investors with the chance to invest in niche sectors and foreign markets.

It was reported that in March 2009 the Investment Management Association stated that there were 2,397 funds managing a total of £347.9bn.

If you are considering this type of investment then it is important that you obtain independent bespoke advice due to the complexities of trusts.