Unit trust?

Jean-David Beyer jdbeyer@exit109.com
Wed, 27 Dec 2000 17:47:39 -0500

Dave Peticolas wrote:
>  writes:
> > Hi.
> >
> > I found a new (I think) account type in 1.4.9, called "Unit trust".
> > What properties does it have? How does it relate to other types such as bank
> > or stock?
> >
> > TIA,
> > Andrea.
> 'Unit trust' is the en_GB translation of 'mutual fund'.
The terms are both used in the US, and are slightly different things. 

You all probably know what a mutual fund is. The most common are open
ended mutual funds, that continually offer their shares to the public at
NAV, and guarantee to repurchase them from the public, also at NAV
(though service charges, etc., may apply). There are also closed ended
mutual funds who are initially capitalized by selling a fixed number of
shares to the public. Then the shareholders trade those shares back and
forth among one another and the mutual fund need not be aware of this.
There are advantages to each of these methods of capitalizing a company.
The open-ended are more popular because they result in higher fees to
the company than manages the company. 

In both of these, the companies are free to trade in and out of
(generally) stocks, or whatever the fund was set up to do.

A unit trust is more like a closed ended mutual fund than an open ended
mutual fund. Typically, a unit trust buys a lot of stocks or bonds, but
may have only one stock, or only one bond, in it. The contents of the
portfolio can be much smaller in number than a mutual fund. (Mutual
funds must contain at least 20 stocks, for example, where a unit trust
can contain anything, such a gold bricks.)

But all three of these are subjected to different regulations, where the
most flexibility is given to unit trusts.

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