What are some of the key differences between an investment company and a unit trust?
Investment companies and unit trusts are vehicles used for pooling investments to assist with diversification of risk for individual investors. An investment company does not normally issue new shares or buy-back outstanding shares to meet investor demand. A new investor in an investment company purchases shares on the stock market at a price at which another shareholder is willing to sell. A unit trust in contrast issues new units or buys back (redeems) outstanding units to meet buy and sell orders. An investment company is also subject to company tax on investment income and capital gains and losses from its investment portfolio. A unit trust is not normally taxed on investment income or capital gains because it must distribute all taxable gains to its unitholders who are then subject to tax on these distributions on a personal basis.
