I have several unit trusts investing in UK shares. Will I be badly affected by the recent drop in share prices?

Yes. Your fund will hold a portfolio of shares and over the past month the FTSE 100 index has fallen by more than 25 per cent. This will be reflected in the price of your fund, which is likely to have fallen by a similar amount. UK equity funds have fallen by more than 20 per cent in the past month and are 30 per cent lower than a year ago.

Should I sell my equity funds?

No. Selling when there is a rush for the exit is rarely a good idea. Brian Dennehy, of Dennehy Weller & Co, independent financial adviser, said: “You are sitting in the eye of the storm and your best bet is simply to ride it out.” If, however, you are so worried about the the stock market that you cannot sleep, it would be better to sell your funds and keep your sanity.

If I did want to sell, is there anything to stop me?

No. You can buy or sell on any working day. If you do your deal on a Monday morning the price will be fixed on the Tuesday, based on the closing prices on Monday. If you leave it to a Monday afternoon it is possible that the price will be fixed on Wednesday, based on Tuesday's closing prices. This reinforces the point that it is not a good idea to sell in turbulent markets if you can help it. Once the deal is done, you should receive your money within five working days.

If my fund group goes bust would I receive compensation?

If the fund group was regulated by the Financial Services Authority (FSA) investors would be able to make a claim on the Financial Services Compensation Scheme. For investments such as unit trusts, they would receive 100 per cent of the first £30,000 and 90 per cent of the next £20,000, making a maximum possible payout of £48,000.

Could all this doom and gloom represent a buying opportunity?

Yes, although you need strong nerves to buy shares at a time like this. Many of the most successful investors are contrarian, in other words they go against the tide and buy when others are selling and sell when others are greedily buying. Mr Dennehy said: “If you are comfortable with the risks that go with the stock market, then a purchase of shares or funds today is likely to prove a profitable investment in five to ten years' time.”

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