GLOSSARY: What is a unit trust?

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The Independent Online
Those who choose to invest in stock markets by making use of their pounds 7,000 individual savings account (ISA) allowance, will usually do so via a unit trust.

Imagine it as a fund that lets lots of investors pool their cash together to buy company shares. It is then typically divided up into equal-sized units - the number you get reflects the size and value of your investment.

You can put down a one-off pounds 3,000 lump sum, say, in which case you might buy 300 units in one go; or you can drip-feed a smaller sum, say pounds 100, into the trust each month.

In the latter case, your money will usually buy a different number of units each month, since each one has a daily price.

So, if markets are rising, your pounds 100 might buy 10 units at pounds 10 in February - but, at a higher pounds 12.50 price in March, only earn you eight units.

Of course, how much you make when you pull your money out will depend on how many units you have, and their market price on the day.

Outside an ISA, rises in value are subject to capital gains tax, but you may escape thanks to the annual pounds 8,200 allowance.

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