Unit Investment Trusts: Everything You Need to Know


Introduction to Unit Investment Trusts

A Unit Investment Trust (UIT) is an investment vehicle that is made up of a fixed portfolio of securities that are selected by the sponsor. The sponsor will also set the term of the trust, which is usually between three and five years. UITs are popular investment vehicles because they offer investors a way to diversify their portfolios without having to actively manage them.

What is a Unit Investment Trust (UIT)?

A Unit Investment Trust (UIT) is a type of investment company that offers a fixed portfolio of securities and trades on a stock exchange. UITs are similar to mutual funds in that they offer investors professional management and diversification, but they differ in terms of how they are structured and operate.

UITs are organized as trusts, which are managed by banks or trust companies. The assets of a UIT are held by a trustee, who is responsible for safeguarding the assets and ensuring that the trust complies with federal and state regulations. The trustee also manages the day-to-day operations of the trust, including buying and selling securities, maintaining records, and distributing income to shareholders.

UITs usually have a fixed term, after which they are liquidated and the proceeds are distributed to shareholders. During the life of the trust, shares can be redeemed by shareholders at their Net Asset Value (NAV), which is calculated daily. However, because UITs have a fixed term, investors cannot redeem their shares prior to the trust’s termination date.

UITs offer investors several benefits, including professional management, diversification, liquidity, and tax advantages. Because UITs are traded on stock exchanges, they also offer the potential for capital gains.

The Three Types of Unit Investment Trusts

Are you looking for a professionally managed, diversified investment that offers simplicity, flexibility, and potential tax advantages? If so, you may want to consider investing in a unit investment trust (UIT).

A UIT is a type of investments that’s easy to understand and purchase. It’s made up of a pool of securities that are selected by a fund manager and remain unchanged for a set period of time, which is typically one to five years. Unlike mutual funds, UITs don’t continuously buy and sell securities—the portfolio is static. And, there are three different types of UITs: equity-only, fixed income-only, and balanced.

Here’s an overview of the three types of UITs:

Equity-Only Unit Investment Trusts
As the name implies, equity-only UITs invest in stocks. These trusts can provide exposure to large-, mid-, or small-cap companies, as well as growth or value stocks, or even a combination of both. There are also sector-specific equity UITs that invest in a particular industry, such as healthcare or technology. Because they tend to be more volatile than other types of UITs, equity-only trusts are generally considered suitable for long-term investors with a higher risk tolerance.

Fixed Income-Only Unit Investment Trusts
Fixed income–only UITs invest in bonds and other debt instruments issued by corporations or governments. The maturities on the bonds held in the trust will dictate when the trust terminates—for example, a fixed income UIT composed of bonds with 10-year maturities will terminate 10 years from the date it is established. Just like equity-only trusts, there are sector specific fixed income unit investment trusts—such as those that comprise only high yield (“junk”) bonds—that are geared towards investors with higher risk tolerances.

Balanced Unit Investment Trusts
Balanced UITs hold both stocks and bonds. The percentage allocated to each asset class will depend on the objectives of the particular trust—for instance, some balanced trusts may allocate 60% to stocks and 40% to bonds while others may have an 80/20 stock/bond split. Because they offer diversification among multiple asset classes, balanced unit investment trusts can be suitable for investors who want participate in the potential upside offered by equities but seek downside protection from fixed income securities.

The Benefits of Unit Investment Trusts

Unit investment trusts offer many benefits that make them an attractive investment option. They’re simple to understand and easy to set up, and they can provide a consistent stream of income. UITs also offer the potential for capital appreciation, and they can be a good way to diversify your portfolio.


Unit investment trusts, or UITs, offer investors several important benefits, chief among them being diversification. By investing in a UIT, you can gain exposure to a wide variety of assets, including stocks, bonds, and real estate, without having to put all your eggs in one basket.

Another benefit of UITs is that they provide professional management at a relatively low cost. When you invest in a UIT, you are pooling your resources with other investors and hiring a team of professionals to manage the trust. This can help you save money on fees and commissions while still getting the benefit of expert advice.

finally, UITs offer investors the ability to invest in a wide variety of asset classes without having to go through the hassle and expense of building and maintaining a diversified portfolio on their own. By investing in a trust that holds many different types of assets, you can easily achieve diversification without having to do any legwork yourself.

Professional Management

Unit investment trusts offer many benefits, but one of the most appealing is that they are professionally managed. This means that you can hands-off approach and invest without having to worry about actively managing your investment. This can be a good solution for busy investors or those who do not feel comfortable making investment decisions on their own.

Another benefit of unit investment trusts is that they tend to be more affordable than other types of investments, such as mutual funds. This is because the management fees associated with unit investment trusts are typically lower than those of mutual funds.

Additionally, unit investment trusts offer a high degree of liquidity. This means that you can sell your units at any time without having to pay a penalty. Many other types of investments, such as real estate or hedge funds, typically have restrictions on when you can sell your units and may charge a fee for doing so.

Finally, unit investment trusts tend to be more tax efficient than other types of investments. This is because the units are typically held in a tax-deferred account, such as an IRA or 401(k). This allows the investment to grow tax-free until you retire and begin taking distributions from the account.

Low Cost

UITs are a low-cost way to invest. The management company that sets up the trust structure and offers the UIT for sale often waives or greatly reduces the fees they would normally charge to manage an investment portfolio. This enables the UIT to be offered with little or no front-end sales charges, which can save you a significant amount of money. UITs also have low ongoing expenses because there is no need to pay a professional portfolio manager to make investment decisions on an ongoing basis.


Unit investment trusts offer investors one big advantage: liquidity. Unlike most mutual funds, which require you to hold your shares for at least a day before selling, you can cash in your unit investment trust shares on any business day. That’s because unit investment trusts don’t trade their portfolios; they simply hold them until the trust expires, typically after a set period of years.


Unit investment trusts offer a high degree of transparency. UITs are required to provide investors with a prospectus that details the trust’s investment strategy, as well as ongoing reports that show the trust’s holdings and performance.

The Risks of Unit Investment Trusts

Unit investment trusts can be a great way to diversify your portfolio and get exposure to a variety of different asset classes. However, there are a few risks to be aware of before investing in a unit trust. In this article, we’ll take a closer look at the risks of investing in a unit trust.

Interest Rate Risk

Unit investment trusts (UITs) are a type of investment product that is structured similarly to a mutual fund, but with some key distinctions. Like mutual funds, UITs pool together money from many different investors and invest in a portfolio of underlying securities. However, UITs are not actively managed like mutual funds; rather, they are structured to provide a specific return over a set period of time and then dissolve. For this reason, UITs tend to be less expensive than mutual funds, since there are no ongoing management fees.

UITs can be very attractive investments, but they do come with some risks that potential investors should be aware of. One of the main risks associated with UITs is interest rate risk. This is the risk that the value of the UIT will decline if interest rates rise. This is because most UITs invest in fixed-income securities, such as bonds, which become less valuable when interest rates increase. This risk can be mitigated by investing in a UIT that holds short-term securities or investing in a UIT that invests in both fixed-income and equity securities.

Call Risk

Unit Investment Trusts (UITs) are subject toCall Risk. This is the potential for the issuer to redeem (buy back) units from the trust before the trust’s termination date. The effect of this can be two-fold. First, if you need to sell your units before the termination date, you may have to sell them at a discount to the current market value. Second, if you hold onto your units until the termination date, you will receive your initial investment plus any dividends or interest that have accrued, but you will not participate in any appreciation in the value of the underlying securities.

While UITs are designed to have a predetermined life span, there is always the possibility that circumstances beyond the control of either the trustee or the sponsor will require early termination of the trust. In this case, investors would receive their pro rata share of the trust’s assets, based on the number of units they held at the time of liquidation.

Market Risk

Unit investment trusts (UITs) are a type of investment company that offers a fixed portfolio of securities, typically stocks or bonds, and investors buy shares in the trust. The portfolio is managed by professional investment advisers who attempt to achieve the stated objectives of the trust, such as capital appreciation or income generation. However, there are several risks associated with investing in UITs that potential investors should be aware of.

Perhaps the most significant risk associated with UITs is market risk. Like all investments, UITs are subject to the ups and downs of the financial markets. Even though the portfolios of UITs are managed by professionals, there is no guarantee that they will be able to protect against losses in a down market. Another risk to consider is interest rate risk. When interest rates rise, the value of bonds typically falls, and this can have an impact on the performance of bond UITs.

Additionally, UITs are often less liquid than other investment vehicles such as mutual funds. This means that it may be more difficult to sell your shares in a UIT if you need to raise cash in a hurry. Finally, UITs often have higher fees than other types of investments, which can eat into your returns.

Before investing in a UIT, make sure you understand all of the risks involved and speak with a financial adviser to ensure that it is the right investment for you.

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