Unit Investment Funds

What is a unit investment trust?

A unit investment trust (UIT) offers a fixed portfolio of professionally selected stocks or bonds to investors, and generally have a low initial investment requirement. Since unit investment trusts are fixed, once the portfolio of stocks or bonds are chosen, they typically don’t change. These portfolios are not actively traded, so you can have a better understanding and visibility into what you own.

Investment companies issue and invest in securities, which appeals to investors who want to buy into a diversified portfolio of securities rather than individual ones.

There are three basic types of investment companies:

1. Open-end funds
2. Closed-end funds
3. Unit investment trusts

What are the different types of UITs?

Although UITs can invest in a variety of securities, most are typically either stock or bond trusts.

Stock unit investment trusts can focus on capital appreciation, dividend income, or both. Stock trusts are more vulnerable to market risks, making them less steady and less predictable than bond trusts.

Bond trusts typically experience less fluctuation in value, which tends to lower risk and helps provide stability in the value of your portfolio. Bond trusts are selected based on a stated investment strategy. These strategies usually focus on providing predictable monthly income and are typically categorized as either “taxable” or “tax-exempt.”  Fixed-income UITs are portfolios of bonds.

Taxable trusts own bonds such as corporate, U.S. government or taxable municipal bonds. Tax-exempt trusts own tax-exempt municipal bonds. The maturities of the bonds held within the portfolio determine the expected life of the trust, with principal returned as the individual bonds mature or are called. Fixed-income UITs with different maturities may help improve the diversification and laddering of your fixed-income portfolio. 

Click Here to Learn More