Unit trusts is a collective investment thus it lowers the risk of invesment by diversification (fund manager buys share in many different companies with your money). Advantages of unit trust include diversification and professional fund management. When you invest in a unit trust, you are not investing in individual stocks but rather a basket of stocks/bonds. Generally, the fund managers' bonuses are tied to the performance of the fund, therefore the managers would have your interest at heart.
To evaluate unit trusts, you can consider the total returns, compare the fund's performance against its benchmark index and consider the performance relative to risk taken. To compare total returns, you can compare the total returns of similar or correlated funds over the same period. For instance, comparing an equity fund with another equity fund that invests in companies of siilar business nature. For bond funds, compare to other funds with similar maturity period or credit ratings. By comparing the fund's performance against its benchmark index, it gives you the value-added by the fund managers. The fund outperforms its benchmark index if the fund's returns are higher than its benchmark index returns. The performance-risk consideration can be measured with the sharpe ratio. The sharpe ratio measures the reward to volatility (risk), that is the fund's historical risk-adjusted preformance. The higher the sharpe ratio, the better the returns generated per unit of risk taken.
Unit trusts is a collective investment thus it lowers the risk of invesment by diversification (fund manager buys share in many different companies with your money). Advantages of unit trust include diversification and professional fund management. When you invest in a unit trust, you are not investing in individual stocks but rather a basket of stocks/bonds. Generally, the fund managers' bonuses are tied to the performance of the fund, therefore the managers would have your interest at heart.
To evaluate unit trusts, you can consider the total returns, compare the fund's performance against its benchmark index and consider the performance relative to risk taken. To compare total returns, you can compare the total returns of similar or correlated funds over the same period. For instance, comparing an equity fund with another equity fund that invests in companies of siilar business nature. For bond funds, compare to other funds with similar maturity period or credit ratings. By comparing the fund's performance against its benchmark index, it gives you the value-added by the fund managers. The fund outperforms its benchmark index if the fund's returns are higher than its benchmark index returns. The performance-risk consideration can be measured with the sharpe ratio. The sharpe ratio measures the reward to volatility (risk), that is the fund's historical risk-adjusted preformance. The higher the sharpe ratio, the better the returns generated per unit of risk taken.