Unit Trusts are a type of open-ended fund and you will hear the most about when these when buying funds. You may also hear as Unit Trusts as referred to Open-Ended Investment-Companies (OEICs) although there is a slight difference between the two in terms of their mechanics.
The key difference between Unit Trusts and OEICs except for the fact that OEICs are run more like a company (hence the name). Shares are created and canceled in the company rather than units.
They are far more popular than Investment Trusts – offering a greater volume of choice in terms of funds and simplicity in terms of pricing. Unlike an Investment Trust that can trade at a ‘premium’ or a ‘discount’, Unit Trusts will always be priced at the value of their underlying holdings.
As they are ‘open-ended’ it means they are always open to accept investment. The Fund Manager will take the cash from investors and issue more units or shares and cancel them accordingly as investors leave.
There are pros and cons to both Unit Trusts / OEICs and Investment Trusts. The most important aspect is to understand your goals and whether there’s a suitable Unit Trust or Investment Trusts to meet the rather than the complexities between the two.