Unit Investment Trust (UIT)
What Is a Unit Investment Trust (UIT)?
A unit investment trust (UIT) is a investment company that offers a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period of time. It is intended to give capital appreciation or potentially dividend income. Unit investment trusts, alongside mutual funds and closed-end funds, are defined as investment companies.
Understanding Unit Investment Trust (UIT)
Investment companies offer individuals the opportunity to invest in a diversified portfolio of securities with a low initial investment requirement. UITs are sold by investment advisors and an owner can recover the units to the fund or trust, as opposed to setting a trade in the secondary market. A UIT is either a regulated investment corporation (RIC) or a grantor trust. A RIC is a corporation where the investors are joint owners, and a grantor trust awards investors proportional ownership in the UIT's underlying securities.
How Investments Are Sold
Investors can recover mutual fund shares or UIT units at net asset value (NAV) to the fund or trust either straightforwardly or with the assistance of an investment advisor. NAV is defined as the total value of the portfolio partitioned by the number of shares or units outstanding and the NAV is calculated every business day. Then again, closed-end funds are not redeemable and are sold in the secondary market at the current market price. The market price of a closed-end fund depends on investor demand and not as a calculation of net asset value.
4,840
The number of unit investment trusts (UITs) outstanding in the United States, with a market value of $74.84 billion, as per the most recent measurements from the Investment Company Institute (ICI).
The Differences Between UITs and Mutual Funds
Mutual funds are unconditional funds, implying that the portfolio manager can buy and sell securities in the portfolio. The investment objective of each mutual fund is to outperform a specific benchmark, and the portfolio manager trades securities to meet that objective. A stock mutual fund, for instance, may have an objective to outperform the Standard and Poor's 500 index of enormous cap stocks.
Numerous investors like to involve mutual funds for stock investing with the goal that the portfolio can be traded. On the off chance that an investor is interested in buying and holding a portfolio of bonds and earning interest, that individual might purchase a UIT or closed-end fund with a fixed portfolio. A UIT, for instance, pays the interest income on the bonds and holds the portfolio until a specific end date when the bonds are sold and the principal amount is returned to the owners. A bond investor can claim a diversified portfolio of bonds in a UIT, as opposed to oversee interest payments and bond recoveries in a personal brokerage account.
There are stock and bond UITs, yet bond UITs are regularly more famous than their stock partners, as they offer unsurprising income and are less inclined to endure losses.
Illustration of a UIT
Guggenheim's Global 100 Dividend Strategy Portfolio Series 14 (CGONNX) was established on March 15, 2018, with the intent to give dividend income. It contains 100 diversified positions: 45.16% is invested in [large-cap](/enormous cap) stocks, 26.94% in mid-caps and 27.90% in small caps. Generally half of the securities are invested in U.S. stocks, with the balance invested in numerous different countries. Allocation reflects numerous sectors too. Each company it holds addresses generally 1% of the portfolio.
Features
- UITS are like both unconditional and closed-end mutual funds in that they all comprise of collective investments in which numerous investors consolidate their funds to be managed by a portfolio manager.
- Likewise dissimilar to mutual funds, UITs aren't effectively traded, meaning securities aren't bought or sold except if there's a change in the underlying investment, for example, a corporate merger or bankruptcy.
- Like unconditional mutual funds, UITs are bought and sold straightforwardly from the company that issues them, albeit at times they can be bought on the secondary market; like closed-end funds, UITs are issued by means of a initial public offering (IPO).
- Dissimilar to mutual funds, UITs have a stated expiration date in light of what investments are held in its portfolio; when the portfolio ends, investors get their cut of the UIT's net assets.
- A unit investment trust (UIT) is a U.S. financial company that buys or holds a group of securities, like stocks or bonds, and makes them accessible to investors as redeemable units.
