Unit trusts are a way of holding assets and are most commonly used as a form of investment strategy.
A unit trust is a particular type of trust that allows individuals to pool together their resources to improve their investment leverage. Each unit trust will have a trustee that decides how the money and where the money is invested in order to generate wealth for unit holders.
There are a number of advantages and disadvantages of investing into a unit trust that ought to be considered.
- Less risk involved in investing due to the diversifition of where the units are invested.
- The trustee is responsible for making expert decisions as to where units are invested.
- Due to the pooling of resources, there are far more opportunities to invest in areas that would not be possible as an individual investor.
- If one unit holder comes into debt, they cannot use assets from the trust to satisfy their debt as the trustee has power over said assets.
- Fees associated with investing into a unit trust are comparatively higher than investing directly.
- Revenue losses or capital losses cannot be offset against other assessable income of trust’s unit holder.
- When assets are transferred into the trust, capital gain cannot be deferred through any kind of CGT rollover relief.
- Investors may feel they have limited control due to a trustee making the investment decisions.