What is a unit trust?

A unit trust is defined as an investment fund established by a trust deed. This type of fund pools money from multiple investors to invest in a diversified portfolio of assets, which may include stocks, bonds, and other financial instruments. Each investor holds units in the trust, reflecting their share of the pooled investment.

The structure of a unit trust allows for professional management and oversight of the investments, providing less experienced investors access to a managed portfolio, typically with lower costs than if they were to manage the investments on their own. This collaborative investment approach can result in reduced risk through diversification, allowing participants to benefit from the collective purchasing power and expertise of the fund managers.

Other types of financial instruments or arrangements do not possess these characteristics, differentiating unit trusts from things like insurance policies, savings accounts, or loan agreements. An insurance policy is specifically designed to provide financial protection against certain risks; a savings account is intended for storing cash rather than investment in a diversified portfolio; and a loan agreement is a contractual arrangement for borrowing funds, unrelated to investment in assets.