Newspaper article The Journal (Newcastle, England)

YOUR MONEY; YOUR MONEY Your Money Queries Are Answered by Trevor Clark, Director of Rutherford Wilkinson Ltd, Chartered Financial Planners

Newspaper article The Journal (Newcastle, England)

YOUR MONEY; YOUR MONEY Your Money Queries Are Answered by Trevor Clark, Director of Rutherford Wilkinson Ltd, Chartered Financial Planners

Article excerpt

Q. I have had two investment Individual Savings Accounts (ISAs) for many years. When I was looking at the most recent statements, I noticed that one has "units" and the other has "shares". What is the difference? A. This is a straightforward question, and the short answer could be that there may be very little practical difference.

The longer answer is that the difference is in the legal structure of the underlying investment. The "ISA" can be thought of as a tax "wrapper", which can be placed around a number of different investments.

Most investments in ISAs use some form of collective investment, where many investors' money is pooled together to spread costs, enabling a much wider range of company shares to be purchased. These collective investments have different legal structures, which is where the difference arises.

The plan you have with "units" is likely to be a unit trust. This is a structure where the manager issues and redeems units to satisfy demand, and the unit value is directly related to the value of the underlying pool of investments. The plan with shares has an underlying investment structured as a company.

This could mean it is directly invested into company shares (for example BP, Vodafone, etc), but is more likely to be a type of collective investment which is itself structured as a company, either an Investment Trust or an "Open Ended Investment Company" (OEIC). Investment Trusts are closed-ended funds.

This means that there are a fixed number of shares in issue and prospective investors must find an existing holder who is looking to sell and agree a price, as with any publicly listed company. The OEIC operates in the same way as a unit trust, issuing and redeeming shares to satisfy demand.

An Investment Trust is quoted on the London Stock Exchange, so its price moves throughout the day and is driven by changes in investor demand. It could trade at a discount (below) or premium (above) the value per share of the underlying assets, according to the rules of supply and demand.

Although the price will be closely related to the value of the underlying assets, it will not necessarily be identical, unlike unit trusts and OEICs, where the units /shares are valued and traded at net asset value (NAV) set once a day. …

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