Unit trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective to determine the management aims and limitations.

Structure

• The fund manager runs the trust for profit.
• The trustees ensure the fund manager keeps to the fund's investment objective and safeguards the trust assets.
• The unitholders have the rights to the trust assets.
• The distributors allow the unitholders to transact in the fund manager's unit trusts
• The registrars are usually engaged by the fund manager and generally acts as a middleman between the fund manager and various other stakeholders

Open-Ended

Unit trusts are open-ended; the fund is equitably divided into units which vary in price in direct proportion to the variation in value of the fund's net asset value. Each time money is invested new units are created to match the prevailing unit buying price; each time units are redeemed the assets sold match the prevailing unit selling price. In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets.

Bid-Offer Spread

The trust manager makes a profit in the difference between the purchase price of the unit or offer price and the sale value of units or the bid price. This difference is known as the bid-offer spread. Typically the bid-offer spread is 5% but this may vary. The trust deed often gives the manager the right to vary the bid-offer spread to reflect market conditions, with the purpose of allowing the manager to control liquidity. In some jurisdictions the bid-offer spread is referred to as the "bid-ask spread".

To cover the cost of running the investment portfolio the manager will collect an annual management charge or AMC. Typically this is 1 to 2%.

A unit is created when money is invested and cancelled when money is divested. The creation price and cancellation price do not always correspond with the offer and bid price. Subject to regulatory rules these prices are allowed to differ and relate to the highs and lows of the asset value throughout the day. The trading profits based on the difference between these two sets of prices are known as the box profits.

A unit is created when money is invested and cancelled when money is divested. The creation price and cancellation price do not always correspond with the offer and bid price. Subject to regulatory rules these prices are allowed to differ and relate to the highs and lows of the asset value throughout the day. The trading profits based on the difference between these two sets of prices are known as the box profits.

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