A financial institution which, in return for a fee or commission, agrees to purchase unsold shares in a new issue, if the issue is not fully subscribed.

From the company's point of view, having its new issue underwritten is a form of insurance. It means that if it has priced an issue too high and the market shuns it, the company can still be sure that it will get money from the new issue.

Of course, security comes at a price. Underwriters charge a fee for the back-up they provide. If the new issue is very popular, it will pocket that fee and make a handsome profit. Occasionally, they get badly burned. New issues underwritten immediately before the 1987 stock market crash lost a lot of money.

Sometimes companies do a rights issue at a deep discount to reduce the underwriting fees.

A bank or other financial institution's guarantee to a company that it will buy a certain number of shares in a company's new issue or rights issue, should the issue not be fully subscribed by other investors.

From the company's point of view, having its new issue underwritten is a form of insurance. It means that if it has priced an issue too high and the market shuns it, the company can still be sure that it will get money from the new issue.

Of course, security comes at a price. Underwriters charge a fee for the back-up they provide. If the new issue is very popular, it will pocket that fee and make a handsome profit. Occasionally, they get badly burned. New issues underwritten immediately before the 1987 stock market crash lost a lot of money.

Sometimes companies do a rights issue at a deep discount to reduce the underwriting fees.

Unit trusts are collective funds which allow private investors to pool their money in a single fund, thus spreading their risk, getting the benefit of professional fund management, and reducing their dealing costs.

Features of unit trusts:

• They are open-ended which means that the trust can issue new units in response to demand. This means that unit trusts trade at their net asset value - that is the value of their underlying assets divided by the number of units in issue. Contrast this with investment trusts, which are closed funds. Their share prices are affected by market forces and often trade at a substantial discount to net asset value.
• Different trusts have different investment objectives. Some invest for income, some for growth. Some invest in small companies, some in large. Some invest in the UK, some in other territories. As an investor you can choose the trust that matches your interest and objectives.
• Investment decisions are made by professional fund managers appointed by the trustees. These managers make annual charges.
• Every day the trustees compute the value of the trust, divide it by the number of units in issue, and produce a bid and offer price based on that calculation. Unfortunately, when you invest in a unit trust, you usually never know the price you will be charged for units until the next valuation point, typically midday the following day.
• Unit trusts are well suited to regular savers who want to drip-feed money into the market every month. With unit trusts, you can invest as little as £50 per month, averaging the acquisition cost of your shares over many months.
• Many unit trusts make an initial charge when you invest, and their management charges are deducted from fund income.