Unit Investment Trust - UIT

Loading the player...

What is a 'Unit Investment Trust - UIT'

A unit investment trust (UIT) is an 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 designed to provide capital appreciation and/or dividend income. Unit investment trusts, along with mutual funds and closed-end funds, are defined as investment companies.

BREAKING DOWN '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 redeem the units to the fund or trust, rather than placing a trade in the secondary market. A UIT is either a regulated investment corporation (RIC) or a grantor trust. A RIC is a corporation in which the investors are joint owners, and a grantor trust grants investors proportional ownership in the UIT's underlying securities.

How Investments Are Sold

Investors can redeem mutual fund shares or UIT units at net asset value (NAV) to the fund or trust either directly or with the help of an investment advisor. NAV is defined as the total value of the portfolio divided by the number of shares or units outstanding and the NAV is calculated each business day. On the other hand, 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 is based on investor demand and not as a calculation of net asset value.

The Differences Between UITs and Mutual Funds

Mutual funds are open-ended funds, meaning that the portfolio manager can buy and sell securities in the portfolio. The investment objective of each mutual fund is to outperform a particular benchmark, and the portfolio manager trades securities to meet that objective. A stock mutual fund, for example, may have an objective to outperform the Standard & Poor’s 500 index of large-cap stocks.

Many investors prefer to use mutual funds for stock investing so that the portfolio can be traded. If an investor is interested in buying and holding a portfolio of bonds and earning interest, that individual may purchase a UIT or closed-end fund with a fixed portfolio. A UIT, for example, 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 own a diversified portfolio of bonds in a UIT, rather than manage interest payments and bond redemptions in a personal brokerage account.

RELATED TERMS
  1. Defined Portfolio

    An investment trust that invests in a predefined portfolio of ...
  2. Closed-End Fund

    A closed-end fund is a publicly traded investment company that ...
  3. Open-End Fund

    A type of mutual fund that does not have restrictions on the ...
  4. Fund Company

    A commonly used term to describe an investment company, which ...
  5. Investment Company Institute - ...

    Founded in 1940, the Investment Company Institute, based in Washington, ...
  6. Municipal Investment Trust

    A type of unit investment trust (UIT) that invests solely in ...
Related Articles
  1. ETFs & Mutual Funds

    Investing In A Unit Investment Trust

    UITs offer professional portfolio selection and a definitive investment objective. Are they right for you?
  2. ETFs & Mutual Funds

    Analyzing The Best Retirement Plans And Investment Options: Exchange Traded Funds (ETFs)

    What they are: Uniquely structured investment funds that track broad-based or sector indexes, commodities and baskets of assets. Pros: Trade like stocks on regulated exchanges; diversity ...
  3. Managing Wealth

    20 Investments: Closed-End Investment Fund

    What Is It? A closed-end fund is an investment fund that issues a fixed number of shares in an actively managed portfolio of securities. The shares are traded in the market just like stocks, ...
  4. ETFs & Mutual Funds

    Open Your Eyes To Closed-End Funds

    Although less popular than their open-ended counterparts, these investment vehicles are worth a second look.
  5. ETFs & Mutual Funds

    Mutual Fund Or ETF: Which Is Right For You?

    Learn the differences between these investment products and how to take full advantage.
  6. Financial Advisor

    Why You Should Consider These Closed-End Funds

    Advisors looking to recommend closed-end funds to clients might want to consider ones that have withstood the test of time. Here are a few examples.
  7. Investing

    Advising FAs: Explaining Mutual Funds to a Client

    More than 80 million people, or half of the households in America, invest in mutual funds. No matter what type of investor you are, there is bound to be a mutual fund that fits your style.
  8. ETFs & Mutual Funds

    Trading Mutual Funds For Beginners

    Learn about the basics of trading and investing in mutual funds. Understand how the fees charged by mutual funds can impact the performance of an investment.
  9. ETFs & Mutual Funds

    The Top 5 International Bond Funds for 2016

    Understand the opportunities available within the international bond market, and learn about the top-rated global bond funds for 2016.
  10. Financial Advisor

    Mutual Funds: How Many is Too Many? (VTSMX, VBMFX)

    How many mutual funds are too many when it comes to a well diversified portfolio?
RELATED FAQS
  1. What is the difference between a closed end investment fund (CEF) and a unit investment ...

    Learn about the major differences between a closed-end fund and a unit investment trust, including how each investment is ... Read Answer >>
  2. What are the primary differences between a closed end investment and an open end ...

    Learn what the primary differences are between open-end investments and closed-end investments, and the implications for ... Read Answer >>
  3. Do mutual funds pay dividends or interest?

    Learn how and why mutual funds pay interest or dividends, including the different funds and which types generate each type ... Read Answer >>
  4. How can I find tax-exempt mutual funds?

    Learn about finding tax-free mutual funds at major investment firms, including how tax-free funds work and what you should ... Read Answer >>
  5. Can an open-ended fund's price appreciate significantly?

    Theoretically, open-end mutual fund prices can experience a significant increase in price. However, three factors need to ... Read Answer >>
  6. How often are mutual fund prices updated?

    Learn how often mutual funds must report their price, or net asset value, which is daily for open-ended registered investment ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center