Choosing which of theworld’s stock markets you want to invest in

Unit trusts are a collective investment scheme that enables you to invest money with others and participate in a wider range of investments and share the costs and benefits of doing so. They have proved popular over the years because cash is invested in a broad spread of shares, thus reducing the risk of losing money if the market falls.

Unit trusts are divided into different groups, or sectors, by the Investment Management Association. You need to decide before you start whether you are interested in receiving income from your investments, or whether you want any dividends reinvested for growth.

Then you need to choose which of the world’s stock markets you want to invest in. There is a wide choice, including the UK and Europe, the USA, the Far East and various emerging markets (which include Latin America, Africa, parts of Asia and the Middle East).

Each of these markets can then be divided into the types of shares in which the fund chooses to invest.

The main fund areas are:

UK all companies: Funds that invest at least 80 per cent of their assets in UK shares, which have a primary objective of achieving capital growth.

UK smaller companies: Funds that invest at least 80 per cent of their assets in UK stocks, which make up the bottom 10 per cent of the UK stock market in terms of size.

Japan: Funds that invest at least 80 per cent of their assets in Japanese shares.

Japanese smaller companies: Funds that invest at least 80 per cent of their assets in Japanese equities of companies, which form the bottom 10 per cent by size.

Asia Pacific, including Japan: Funds that invest at least 80 per cent of their assets in Asia Pacific shares, including some Japanese shares. The Japanese element must make up less than 80 per cent.

Asia Pacific, excluding Japan: Funds that invest at least 80 per cent of their assets in Asia Pacific shares and exclude Japanese shares.

North America: Funds that invest at least 80 per cent of their assets in North American shares.

North American smaller companies: Funds that invest at least 80 per cent of their assets in North American equities of companies, which form the bottom 10 per cent by size.

Europe, including UK: Funds that invest at least 80 per cent of their assets in European shares. They may include UK stocks, but these must not exceed 80 per cent of the fund’s assets.

Europe, excluding UK: Funds that invest at least 80 per cent of their assets in European shares and exclude the UK.

European smaller companies: Funds that invest at least 80 per cent of their assets in European equities of companies, which form the bottom 10 per cent by market capitalisation in the European market. They may include UK stocks, but these must not exceed 80 per cent or the fund’s assets. (‘Europe’ includes all countries in the FTSE pan-European indices.)

Emerging markets: Funds that invest 80 per cent or more of their assets directly or indirectly in emerging markets as defined by the World Bank, without geographical restriction. Indirect investment; for example, China shares listed in Hong Kong – should not exceed 50 per cent of the portfolio.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication of future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.