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Over the last twenty years Unit Trusts have become an increasingly popular way of investing capital and today there are many hundreds of unit trust funds, investing in Stock Markets around the world. Unit trusts are often described as "collective" or "packaged" investments and this means that investors have a financial stake in an investment fund, which may invest in a wide range of securities, including stocks and shares. This allows even a small investor to participate in a large portfolio of shares with many other investors, through the holding of units in a fund. The number of units held depends on how much capital is invested and the price at the time units are bought. Because most unit trusts are invested in stocks and shares, as you might imagine the price of the unit trust will go up and down in line with what is happening to the underlying investments.

Each trust has specific objectives and because of this there are over twenty different unit trust categories.These cover UK funds, overseas funds and specialist funds. UK funds include Growth, Income, Smaller Companies, Gilts and Corporate Bonds. The objectives of the Growth and Income funds is obvious, the Gilt and Corporate Bond funds invest in fixed interest securities, whilst the Smaller Companies funds invest most of the assets in, as you might imagine, smaller companies. There are a large number of International funds, which allow investors to either have a broad international spread of investment or to invest in countries or regions including North America, Europe, Japan and the Far East. Specialist funds include Technology funds and Commodity and Energy funds.

Unit trusts are attractive to a large number of people for different reasons, these include:

• Investors who have only a small amount of capital and are unhappy investing in just one or two shares. Unit trusts will give them an investment in a large portfolio of shares.
• Individuals who recognize the potential of equity investment but would prefer to have professional management rather than making day to day investment decisions themselves.
• Those with existing share portfolios who perhaps enjoy investing in shares but feel more comfortable having part of their portfolio professionally managed.
• UK investors wishing to invest capital in overseas markets.

Capital Gains tax may be payable on any profits made when the unit trust is sold. Dividends are subject to income tax in the same way as dividends from equities. The actual tax position will depend on your individual circumstances.

This is always a very important issue and you should remember that risk and reward are linked. In general terms, the higher the potential, the higher the risk. If investment in a building society deposit account can be described as low risk, then investments in unit trusts can range form low to medium risk in the case of most Gilt funds, to medium risk for most UK Growth and Income Funds, through to high risk for the Specialist funds.