Unit Linked Funds
Unit Linked Funds
A Unit Linked Fund (ULF) is an investment fund that is divided into a number of equal units, the price of which is determined by the underlying assets held in the fund. These may be stocks, bonds, property or cash. Divided in this way enables many thousands of small investors to access an investment with wide diversification.
The history of ULFs began in 1773 in the Dutch Republic (Netherlands) by a businessman called Abraham van Ketwich who formed a trust with an idea to provide small investors with an opportunity to diversify.
Suddenly a person with limited resources could invest with much less risk thanks to the “strength” of the diverse investments.
After all this time ULFs following a similar strategy and still are very popular products.
As any other investment instrument ULFs have advantages and disadvantages.
The main advantages for investors is risk reduction, as the investments are distributed among a large number of different organisations.
ULFs allow investors with small savings/capital amounts to join the financial market.
They provide liquidity and offer flexibility of choosing different categories of investments from equities, commodities, fixed return, and money markets.
On the negative side, investors in ULFs must pay various fees and expenses plus they must rely on the decisions of their professional managers. Also all ULFs are invested in specific sectors or under the banner of a managed fund which often comprises of other sector orientated ULFs. While managed funds offer the widest diversification they often result in higher annual management charges (AMC) as underlying assets also charge their own AMCs.
In practice all the managers tend to be well–regulated and depend on their reputation which ensures client confidence when investing.
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