There are several advantages.

First, it's an easy form of investment.  Some unit trusts make regular investment easy through the operation of savings schemes.  It's also convenient to buy and sell units through the manager's agents or branches.  Management expertise is also on tap.

Investments are spread over different forms of investment countries, industries and companies.  These cannot be achieved with direct investments with a modest sum of money. It's hassle free as rights issues, bonus issues, takeover bids and so on are administered by the manager.

Finally, it is an affordable way for the small investor to participate in the stock, bond, property and commodity markets.

There are also inherent risks.   Because of the plethora of different types of unit trusts, the investor may end up buying into the wrong unit trust.  One that does not suit his risk profile.

For instance, there are unit trusts or mutual fund that invest in particular sectors: for example, the gold sector, financial sector or venture capital.  For an investor who loathes risks, such unit trusts or mutual funds are not for him.

The performance of the unit trust hinges on the skills and knowledge of the manager.

Although the timing of purchases and sales of shares and bonds for example, are left to the manager, the unit holder still has to make his decision.

His returns depend on his timing and selection of unit trust.  The price depends on the asset value of the components of the unit trust.

Currency risk comes into the picture if the unit trust is denominated in a foreign currency.  If the foreign currency falls in value against the local currency, the investor will suffer an exchange loss.

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