Unit Trusts and Investment Bonds

Unit trusts are a type of 'pooled investment'. A fund manager buys shares in a range of different companies and pools these in a fund; you then buy 'units' in the fund. Because the fund contains a range of shares the risk is spread. Each unit trust fund has a stated investment strategy, enabling you to invest according to your attitude to risk. Funds investing in emerging markets or smaller companies, for example, would be considered to carry much higher risks than those investing in large UK companies. You buy and sell unit trust through the fund manager. Their value moves in line with the overall value of the fund, which in turn moves in line with changes to the underlying share prices in the fund. You may also get dividend income or interest distributions from your units, based on the dividends or interest paid by the underlying shares or other investments.

Investment trusts are similar, the main difference is that they are companies themselves. Because investment trust share prices are affected partly by supply and demand, they can often fluctuate more than unit trusts.

Unit trusts are often the vehicle utilised in investment ISAs. Ensuring your tax efficient investments offer a managed and diversified pool of underlying shares.

Investment bonds are lump-sum investments with insurance companies. You will get some life assurance with these products, but it is usually a minor part of the product. They should not be mistaken for fixed-term deposits (often called 'bonds'), from banks and building societies. Your investment is placed in a fund like a unit trust. There will be a choice of funds available, offering a range of different types of investment and different levels of risk.

Most investment bonds do not have a specified term or end date. Usually your money remains in the fund for as long as you want to. Once payments have been made into an investment bond, you can make partial withdrawals from your fund. You can take 5% p.a of the value of your initial investment each year for 20 years without further liability to income tax. The charges for bonds can often be higher than for unit trusts, so it is important to bear this in mind.

We often find that clients have accumulated a portfolio of unit trusts and bonds in a haphazard way. Contact us for a thorough review to ensure your portfolio matches your current needs and optimises tax saving opportunities.