Unit Trust Association

What is a Unit Trust?


What is a Unit Trust?

A unit trust is a simple concept. Imagine there is an asset that you can’t afford to buy on your own. So you gather a bunch of friends and each one makes a contribution. Then you buy the asset collectively. When the value of the asset appreciates, it can be sold at a profit and the members are entitled to a share of that profit.

So it’s the same with a unit trust. Except instead of friends, it’s hundreds of other investors that you collectively invest with. And the assets you invest in may be shares, treasury bills or other securities, depending on the unit trust you choose. And similar to the venture with your friends, when the asset values appreciate, you stand to profit.

Is a Unit Trust a good investment?

If you look at it from a long-term perspective, the answer is almost always yes.

Units Trusts are based on markets. It is true that the markets fluctuate, but the historical trend has always been upward, consistently beating inflation and bank interest. For example, take the stock exchange. There have been many ups and downs over the last decade. But it has still grown at a considerable rate.

Unit Trusts diversify their investment portfolio, which is the best strategy for minimizing risk and generating steady returns. You’re not putting all your eggs in one basket.

Unit Trusts are managed by highly qualified experts who spend their entire time studying and researching market opportunities. Chances are they can even beat the average market performance.

There are also various types of Unit Trusts to choose from, depending on your risk tolerance and your financial goals.

What are the benefits of investing in Unit Trust?

There are so many benefits.

It’s rewarding. A Unit Trust can offer a much faster rate of return than a bank deposit over a period of 3 to 5 years.

It’s cost-effective. You need to have millions to invest in land, or lakhs to open fixed deposits. But you can invest in Unit Trust with as little as Rs.1,000 !

With a small amount as Rs. 1,000/=, you have the privilege of earning a return from a well- diversified portfolio of investments.

You need not commit long hours to make your investment decisions, which includes analyzing information, being constantly vigilant of equity and fixed income markets, learning and adopting different investment strategies etc. It is taken care of by the Professional Fund Manager.

The assets of the Fund are under the custody of an independent Trustee, who looks after your interest.

It’s flexible. With Unit Trusts, you can invest additional money whenever you have some, and you can pull out your money whenever you need it, without any penalties. Try doing that with property or term deposits!

Returns from Unit Trusts are tax-free. In most circumstances, the returns from your Unit Trust investments are yours to keep.

How much should I invest in a Unit Trust?

One of the great things about a Unit Trust is that you don’t need huge sums of money to invest in one. You can start with as little as Rs.1,000. Take advantage of the flexibility of a Unit Trust. You don’t have to invest a large one-off lump sum. Instead, build up your investment over a period of time, as and when you have the funds available – like a savings account, but with much higher earning potential!

Remember, when it comes to equity funds, don’t think of a Unit Trust as a short term investment. It might make you some money in a month, it might not. So it is not advisable to put funds that you might need for daily living into a Unit Trust. But look at it as a long-term investment and it is highly unlikely that you will be disappointed.

What proportion of your savings you should invest in a Unit Trust depends on your financial circumstances and goals. It is but one of many options you have – savings accounts, fixed deposits, land etc. Consider each carefully, balance the pros and cons, and then decide.


The Information provided on the UTA website is based on the information provided by the members. As such UTA does not take any responsibility for its accuracy, completeness and timeliness.