What is a unit trust?

A unit trust is established by a trust deed, which outlines the structure and governance of the fund. It is an investment scheme designed to manage money on behalf of multiple investors, pooling their resources to invest in a diversified portfolio of assets. The trust is managed by a trustee, whose role is to oversee the investments according to the guidelines set out in the trust deed. By doing so, this allows investors to gain access to a professionally managed portfolio while benefiting from economies of scale that come from pooling their funds with other investors.

The key aspect of a unit trust is its focus on collective investment where the investors’ contributions are pooled together, and units in the trust are issued to the investors in proportion to their contributions. This structure allows for diversification and can also result in reduced risk compared to individual investing. Furthermore, the legal structure of a unit trust provides certain protections for investors, as their funds are held separately from the trustee's own assets.

Understanding this helps clarify why the other choices do not accurately define a unit trust. A close-end fund, for example, has a different structure regarding shares and investor exit. Funds without a formal structure lack the legal framework and governance provided by a trust deed. Additionally, a company focused solely on real estate does not encompass