20 Investments: Unit Investment Trusts (UITs)
  1. 20 Investments: Introduction
  2. 20 Investments: American Depository Receipt (ADR)
  3. 20 Investments: Annuity
  4. 20 Investments: Closed-End Investment Fund
  5. 20 Investments: Collectibles
  6. 20 Investments: Common Stock
  7. 20 Investments: Convertible Security
  8. 20 Investments: Corporate Bond
  9. 20 Investments: Futures Contract
  10. 20 Investments: Life Insurance
  11. 20 Investments: The Money Market
  12. 20 Investments: Mortgage-Backed Securities
  13. 20 Investments: Municipal Bonds
  14. 20 Investments: Mutual Funds
  15. 20 Investments: Options (Stocks)
  16. 20 Investments: Preferred Stock
  17. 20 Investments: Real Estate & Property
  18. 20 Investments: Real Estate Investment Trusts (REITs)
  19. 20 Investments: Treasuries
  20. 20 Investments: Unit Investment Trusts (UITs)
  21. 20 Investments: Zero-Coupon Securities
  22. 20 Investments: Conclusion

20 Investments: Unit Investment Trusts (UITs)

What Is It?
A unit investment trust (UIT) is a registered trust in which a fixed portfolio of income-producing securities is purchased and held to maturity. UITs usually hold a large amount of municipal bonds, but they may also consist of government bonds, corporate bonds, or even common stocks. Common stock is held in a "stock trust" that mainly relies on dividends and capital appreciation of stock prices to make money.

Two examples of variations on the stock trust are diamonds and spiders (SPDRs), which attempt to track the performance of the major market indexes. Investors receive interest (or dividends) on the bonds (or stocks) held within the UIT. This interest is proportionate to the amount they invested into the trust.

A UIT is sort of like a mutual fund, but once the UIT selects the securities it will hold them - the portfolio is not managed like mutual funds are. It is not until the bonds held in the UIT mature that the trust is dissolved.

Objectives and Risks
Their steady and predictable income stream makes bond UITs very popular with retirees looking for supplements to their income. One risk that comes with a UIT is that, because the interest on the UIT is fixed for the life of the security, it is more susceptible to inflation. For the most part, UITs are fairly low-risk investments, but stock UITs depend heavily on the performance of the stock market, and in a stock trust there is no certainty of return like there is in a bond trust.

How To Buy or Sell It
Most UITs usually cannot be purchased through traditional brokers. Instead, they can be bought through some insurance companies or financial advisors/planners. Each unit typically costs $1,000, is sold by brokers to investors, and can be resold in the secondary market. You will usually pay a sales fee when purchasing the UIT - therefore, UITs don't make good short-term investments.

Strengths

  • UITs are very well diversified.
  • If your goal is to provide income, you can buy a bond trust. If you want capital appreciation, then you can buy a stock trust.

  • Weaknesses

  • Because the interest payments on a UIT are fixed, holding a UIT for a long time could undermine performance.
  • Depending on the type, a UIT can sometimes be difficult to sell quickly.

  • Three Main Uses
  • Provides Income
  • Capital Appreciation
  • Tax-Deferred Savings
  • 20 Investments: Zero-Coupon Securities

    1. 20 Investments: Introduction
    2. 20 Investments: American Depository Receipt (ADR)
    3. 20 Investments: Annuity
    4. 20 Investments: Closed-End Investment Fund
    5. 20 Investments: Collectibles
    6. 20 Investments: Common Stock
    7. 20 Investments: Convertible Security
    8. 20 Investments: Corporate Bond
    9. 20 Investments: Futures Contract
    10. 20 Investments: Life Insurance
    11. 20 Investments: The Money Market
    12. 20 Investments: Mortgage-Backed Securities
    13. 20 Investments: Municipal Bonds
    14. 20 Investments: Mutual Funds
    15. 20 Investments: Options (Stocks)
    16. 20 Investments: Preferred Stock
    17. 20 Investments: Real Estate & Property
    18. 20 Investments: Real Estate Investment Trusts (REITs)
    19. 20 Investments: Treasuries
    20. 20 Investments: Unit Investment Trusts (UITs)
    21. 20 Investments: Zero-Coupon Securities
    22. 20 Investments: Conclusion
    RELATED TERMS
    1. Unit Investment Trust - UIT

      An investment company that offers a fixed, unmanaged portfolio, ...
    2. Municipal Investment Trust

      A type of unit investment trust (UIT) that invests solely in ...
    3. SEC Form NSAR-U

      An annual filing with the Securities and Exchange Commission ...
    4. Initial Offering Date

      1. The date at which a security is first made available for public ...
    5. Regulated Investment Company - RIC

      A mutual fund, real estate investment trust (REIT) or unit investment ...
    6. Tax-Advantaged

      Any type of investment, account or plan that is either exempt ...
    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 activities can an Investment Company Products/Variable Contracts Limited Representative ...

      If you have successfully completed your Series 6 exam and are registered as an Investment Company Products/Variable Contracts ... Read Answer >>
    3. What is the difference between a revocable trust and a living trust?

      Learn how a revocable trust and living trust are two terms used to describe the same thing and what the key provisions are ... Read Answer >>
    4. Can a corporation deduct dividend payments to shareholders before taxes are calculated?

      Corporations may not legally deduct the dividend payments before taxes but there is another approach - a corporate structure ... Read Answer >>
    5. What is the difference between revocable and irrevocable intervivos trusts?

      Learn what an inter-vivos trust is, the difference between an irrevocable and a revocable inter-vivos trust, and why it is ... Read Answer >>
    6. Will I have to pay taxes every year when I receive the $25,000 from my trust fund?

      My inheritance is in the form of a trust fund that distributes $25,000 per year for 10 years. ... Read Answer >>
    Hot Definitions
    1. Over-The-Counter - OTC

      Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
    2. Quarter - Q1, Q2, Q3, Q4

      A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
    3. Weighted Average Cost Of Capital - WACC

      Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
    4. Basis Point (BPS)

      A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
    5. Sharing Economy

      An economic model in which individuals are able to borrow or rent assets owned by someone else.
    6. Unlevered Beta

      A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
    Trading Center