The investment classroom is the part of our website in which you will find more detailed information on key investment terms together with answers to frequently asked questions.

1. WHY SHOULD I INVEST IN THE STOCKMARKET?
Although stockmarket prices rise and fall over the short-term, over the long-term, direct investment in the ordinary shares of sound companies outperforms other types of fixed capital financial investments such as building societies and banks' savings and investment accounts. Why is that?

A share represents an ownership interest in the capital of a business. As businesses grow their revenues, profits and cash flows from their capital base, they become more valuable, provided that they earn a greater return from their operational activities than the cost of the capital they employ in their operations. As the value of the business increases, so does the value of each share. Share-owners are not only rewarded by an increase in the capital value of their investment in sound, growing companies, but also by dividends, which are cash distributions from the profits of successful business activity.

Stockmarket price and underlying business value don’t always move in line with each other, which is why investment opportunities emerge. A stockmarket price that runs ahead of underlying business value indicates an over-priced share: a market price that lags underlying business value suggests a share price that is undervalued. Investment management is the art of buying more in business value than an investor pays for in market price.

FOR FURTHER INFORMATION
The following websites provide further information on the essential elements of stockmarket investment:
The Motley Fool’s Guide to Getting Started in Investment

2. WHAT IS AN INVESTMENT TRUST?
Investment Trusts are companies that invest in the shares of other companies. They pool investors' money and employ a professional fund manager to invest in the shares of a wider range of companies than most people could practically invest in themselves. This way even people with small amounts of money can gain exposure to a diversified and professionally run portfolio of shares, spreading the risk of stockmarket investment. There are over 300 investment trusts responsible for the management of billions of pounds' worth of assets on behalf of investors.

For further information, please see the Association of Investment Trust Companies’ Guide to Investment Trusts.

3. WHAT ARE UNIT TRUSTS AND OPEN ENDED INVESTMENT COMPANIES?
Unit Trusts and OEICs (Open Ended Investment Company) are pooled funds of investors' money, which are used to buy a range of shares, gilts, bonds or cash deposits. Both Unit Trusts and OEICs are open ended funds meaning that the size of each fund can vary according to supply and demand. Unit Trusts and OEICs provide a mechanism of investing in a broad selection of shares, thus reducing the risks of investing in individual shares. Typically, a Unit Trust or OEIC is worth anything from £5m to £300m. There are thousands of Unit Trusts and hundreds of OEICs to choose from, so it is important to select the right fund to meet your needs.

When you invest in a Unit Trust you buy a unit; when you invest in an OEIC, you buy a share: both are equivalent to a portion of the fund. Each Unit Trust and OEIC has its own investment objective and the fund manager has to invest to achieve this objective. The fund manager will invest the money on behalf of the unit holders (or shareholders). The value of your investment will vary according to the total value of the fund, which is determined by the investments the fund manager makes with the fund's money. To cover the costs of running a fund you will usually have to pay an initial charge when units or shares are purchased, and an annual fee for ongoing costs such as administration. Some fees are declared as a percentage of your investment, others are built into the price. You can invest into a Unit Trust or OEIC through an ISA (Individual Savings Account).

4. WHAT ARE INDIVIDUAL SAVINGS ACCOUNTS (ISAs)
An ISA can be made up of an investment in cash, or investments like stocks and shares or insurance. Individual savers are able to invest in two separate ISAs in any one tax year: one cash ISA and one stocks and shares ISA. For cash ISAs, an individual can invest up to £3,600 a year, and can only invest with one provider in any one tax year. For stocks and shares ISAs, an individual can invest up to £7,200 a year, and can only invest with one provider in any one tax year. If an individual wants to invest in both a cash ISA and a stocks and shares ISA in the same tax year, the separate limits for each type of ISA still apply, but the individual cannot invest more than £7,200 in total. The individual’s cash ISA and stocks and shares ISA can be with either the same or with different providers.

For further information please see the Inland Rvenue ISA factsheet http://www.hmrc.gov.uk/leaflets/isa-factsheet.pdf

5. WHAT IS A VCT?
Venture Capital Trusts (VCTs) are companies whose shares are listed on the London Stock Exchange and provide investors with the opportunity to invest larger sums of money and enjoy a number of potentially generous tax benefits. AIM VCTs invest primarily in companies that are listed on the Alternative Investment Market of the London Stock Exchange, and to a lesser extent unquoted companies and companies traded on OFEX, the market which allows share dealing in unquoted companies and unlisted securities.

There are some material tax benefits available to UK residents who invest in new ordinary shares in VCTs. These include the following:

Income tax relief at the rate of 30% on the amount subscribed up to £200,000 in the 2006/2007 tax year. To qualify, the shares must be held for not less than 5 years from the date of issue;
An investor who acquires shares in either or both of the above tax years having a value of up to £200,000, will not be liable to income tax on dividends paid on those shares;
Relief from capital gains tax on disposal of the shares.

6. GLOSSARY OF INVESTMENT TERMS
For comprehensive definitions of investment terminology, click here

7. CONTACT US
If you require any further information regarding Unicorn’s products and services please refer to the links within the site or contact us directly at info@unicornam.com

Levels and bases of reliefs from taxation are subject to change and the value of any relief depends on an investor’s individual circumstances. Inland Revenue law and practice can change over time, and investors who are unsure as to their tax status should obtain independent advice from a professional adviser such as a solicitor, accountant, stockbroker or independent financial adviser.

The information on this page is believed to be correct at the time of writing (October 2006).