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The monetary financial system - Essay Example
Author : abigalelehner
Finance & Accounting
Pages 4 (1004 words)
The Monetary Financial System Date: 15th May, 2013 1. In what ways is unit-trust and investment trust is similar and how do they differ? The investment scenario in the financial world has evolved to accommodate new and improved products…
However, these investments have a downside risk of underperformance and lack of control etc. There are two types of collective investments: open ended investments and closed ended investments. In the open ended investments the number of shares or units is not fixed and the fund can issue unlimited amount of shares/units. However, as the name suggests, in closed ended investments the number of shares or units issued is fixed. The unit trust and investment trust are examples of collective investment institutions with certain notable differences which are explained as follows. ‘An investment in unit trusts is a method whereby a small investor can form part of the share market without being directly involved.’ (Swart, 2007, p.153) ‘In contrast to unit trust, investment trusts are public limited companies whose business is the investment of funds in financial assets.’ (Buckle and Thompson, 1992, p.125) Both the unit trust and the investment trusts are pooled investments that aim towards diversification of risk for the investor. The individual investor benefits from the knowledge and expertise of the trust managers for which the trust charges fees to its unit holders in the form of annual charges. Financial institutions and intermediaries play an important role in the management of the unit and investment trusts. ...