Home / Learn / Level 3: Advanced / Lesson 25

Level 3: Advanced

Mutual funds and unit trusts: how they work

8 min read · Before you start: Beginner investing lesson · Updated 1 November 2026

Key terms in this lesson: money market fund · emergency fund · net asset value (NAV) · Currency risk (all defined in the glossary)

A mutual fund or unit trust pools money from many investors and invests it for them. You do not pick each share or bond. You buy a slice of the whole pool, which is why it is a common first step into investing.

The basics

• The fund is split into units. When you invest, you buy units at the current price.
• The price per unit is based on the net asset value (NAV): the value of everything the fund owns, minus what it owes, divided by the number of units.
• If the fund's investments rise, the NAV and your unit price rise. If they fall, so does your unit price.
• A professional manager decides what the fund holds, following the objective set out in its prospectus.

Common types

"Lower" does not mean "none". Even a money market fund is not a bank deposit and is not covered by deposit insurance.

How you can make money

• Income: the fund may pay out interest or dividends, or reinvest them for you.
• Price growth: your units may be worth more when you sell than when you bought.

You can also lose money. Investments can fall, and you may get back less than you put in.

Fees are a quiet cost

Funds charge for running the fund, through a management fee and sometimes entry or exit charges. These come out whether the fund goes up or down. Small percentages matter over time. Here is TT$10,000 left to grow for 20 years:

One percentage point of extra yearly cost leaves you with roughly TT$5,500, or about 17 percent, less at the end. Fees are not the only thing to judge, but they are worth knowing.

Main risks

• Market risk: prices fall when markets fall.
• Interest rate risk: bond prices usually fall when rates rise.
• Currency risk: a fund holding foreign assets can gain or lose from exchange-rate moves.
• Concentration: the local market is small, so a fund focused on a few companies is less spread out.
• Access: check how quickly and at what price you can sell units.

Questions to ask before you invest

1. What is the fund's objective and what does it hold?
2. What are all the fees, including entry and exit charges?
3. Who runs it, and is it registered with the Trinidad and Tobago Securities and Exchange Commission (TTSEC)? Check the TTSEC's website.
4. How often is it priced, and how do I sell?
5. Can I read the prospectus and the latest annual report?

Be careful with past performance. A fund that did well last year may not repeat it. Investments can fall in value, so money needed soon, and money meant as an emergency fund, is usually kept elsewhere (see the emergency fund lesson).

Run your own figures with the fee calculator on the tools page.

How a unit price is set

A fund's unit price is not quoted by a market minute by minute the way a share price is. It is calculated from the fund's own holdings, usually once a day or on set dealing days.

Net asset value per unit = (everything the fund owns − what it owes) ÷ units in issue.

A fund holding TT$52,000,000 of assets with TT$2,000,000 of liabilities and 10,000,000 units in issue has a net asset value of TT$50,000,000 and a unit price of TT$5.00. If the holdings rise 4 per cent and nothing else changes, the price becomes about TT$5.20.

Bid, offer and a single price

Some funds quote one price for buying and a lower one for selling, with the gap being the entry cost; others quote a single price and charge separately. Two funds can look very different on a fact sheet and cost the same, or look identical and not. The offering document states which structure applies.

Reading a fund fact sheet

A fact sheet is usually one or two pages and holds most of what distinguishes one fund from another:

• Objective — what the fund is trying to do, which is the thing performance should be judged against.
• Top holdings — often ten names. Two "balanced" funds can hold very different things.
• Asset allocation — the split between shares, bonds and cash.
• Fees — the annual management charge, and any entry or exit charge.
• Performance — usually over one, three and five years, and typically net of the management fee but not of any sales charge.
• Dealing terms — how often it is priced, the minimum investment, and how long a withdrawal takes to settle.

Income: paid out or reinvested

Where a fund receives interest or dividends from its holdings, it either distributes that to unit holders or reinvests it. A distributing fund pays cash and the unit price falls by the amount distributed. An accumulating fund retains it and the unit price reflects it. Neither is better in itself; they suit different purposes, and comparing the headline price movement of one against the other without accounting for distributions understates the distributing fund's return.

What can restrict getting money out

Units are generally sold back to the fund rather than to another buyer, which is a different arrangement from selling a share on an exchange. Several things affect how quickly that happens:

• Dealing frequency. A fund priced weekly cannot be exited on a Tuesday.
• Settlement period. Cash typically arrives some days after the instruction.
• Exit charges, where they apply, and whether they reduce with time held.
• Suspension provisions. Offering documents commonly allow dealing to be suspended in exceptional conditions, which is a clause worth reading before it is ever needed.

These are the reasons lesson 4 keeps the emergency fund outside pooled investments entirely.

Test yourself

Mark this lesson as done

Not financial advice. This lesson is general education only. See our editorial policy and disclaimer.