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What’s The Difference Between Unit Trusts And Mutual Funds?

MoneyA unit trust fund is an investment scheme that pools money from investors to meet a specific financial objective. The manager of the fund then invests the money in various securities such as shares or bonds, with the hope of meeting the desired objective of the fund. (Is there anyone on this planet who doesn’t know this already?)

Mutual funds are investment schemes, very similar to unit trust, found in the United States and a few other countries. Though there are three different types of mutual funds i.e. open-ended, unit investment trust, and closed-ended, the most common is the open-ended fund. They work on the same principle as a unit trust. So we can say that it is similar but not quite the same.

The main difference between the two is in their legal structure. A mutual fund is an investment company that issues redeemable shares while a unit trust, because it is not a company, only issue units.

Examples of mutual fund companies are Fidelity Investments – where the famous Peter Lynch once ran the Fidelity’s Magellan Fund – and Vanguard Group (both based in the USA).

Interestingly, there are over 15,000 mutual funds in the US compared to only 2,800 listed securities on the New York Stock Exchange! This seems to suggest that two of the surest ways to make money from mutual funds are to run and sell them!

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2 Responses to "What’s The Difference Between Unit Trusts And Mutual Funds?"

  1. JJ Wong says:

    I thought Malaysia have both Mutual Fund & Unit Trust until I read your article here. For non professional people like me that want to invest, it’s much safer to invest in unit trust and pass on for experts to diversify and invest for us in stock market, bond and others.
    Still, we have to learn to identify good fund manager from the poor one.

    • Azizi Ali says:

      Then you really have to read my book “Money Changes Everything” for the truth about unit trust funds!

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