Unit Trusts

Investing directly in the purchase of company stocks and shares carries more risk, both as to income and growth, than many small investors are willing to undertake. But they, and others who lack the knowledge, experience, or skill adequately to supervise their shareholdings, can participate indirectly in the stock and share market by buying units of unit trusts.

A unit trust is a fund invested in a large range of undertakings, ordinary company shares, overseas shares, preference shares, and so on. Each unit holder thus enjoys a wide spread of risk since he has only a very small interst in a very large number of different companies.

Units are easy to buy and sell, but it has to be realised that prices can go down as well as up, as unit prices are determined by the market prices of the underlying portfolio of investments. Although unit trusts must be considered essentially speculative, the risk is so spread that price movements are slower and smaller than those of shares.

Historically, and over the long term, most unit trusts have risen considerably in value, as well as paying out regular distributions of income earned on the underlying investments. Different trusts offer different mixes of shares, so that there is a wide range of trusts to choose from. Some are geared particularly for capital growth, some for high income and lower growth. The better-managed unit trusts have far outpaced the FT Index.

Units in many trusts can be purchased by a regular monthly savings plan. You give your bank a standing order and units are bought for you each month in the trust you select. A variation, and a very profitable one, is to link the savings plan to life assurance. By this device you can take advantage of the tax relief accorded to premiums on 'qualifying' life assurance policies (see Chapter 12).

Instead of your monthly contribution being used directly to buy trust units, it is treated as a premium on a life assurance policy on your life. The policy is linked to the unit trust and practically all the contributions, except those for the first few months, are invested in units. Because each contribution is legally a `premium' on a life assurance policy, the actual amount you pay to the trust managers is deemed to be 'net of tax relief at 17.5%' (15% from April 2001). That means that the managers can claim a further amount from the Inland Revenue. Consequently each £82.50 contribution you make is worth £100 of unit trust units.

This is really a long-term investment and ought to be kept going for at least four years or more. You can surrender any time you like, but a surrender within ten years involves some small penalties.


Dealing Costs

For buying or selling ordinary shares on the Stock Exchange you have to use the services of a stockbroker. You may either instruct a stockbroker direct, or you can ask your bank or your solicitor to handle the transaction for you, in which case the bank's or solicitor's own stockbroker will act. The following gives an idea of what the costs are likely to be:

Transfer stamp. A government tax of 2% of the contract price has to be paid by the buyer, but not by the seller.

Contract stamp. A contract stamp has to be affixed to the copy of the contract note that is sent both to the... see: Dealing Costs


Refunds, Personal And Business Finance 2017

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