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

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    4. Initial Offering Date

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    5. Regulated Investment Company - RIC

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