Complete Guide To Investment Companies, Funds And REITs


Unit Investment Trusts - Investment, Taxes And Measuring Performance

How to Invest
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. Investors generally pay a load when purchasing UITs and accounts are subject to annual fees.

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.

UITs may make periodic dividend payments (often monthly or quarterly). Shareholders with taxable accounts are responsible for paying taxes on the dividend. Because UITs buy securities and hold them, capital gains generation is usually of little concern prior to liquidation.

Unlike open-ended mutual funds, in which investors share responsibility for tax liabilities generated by the portfolio, UITs offer a different scenario. If purchased at the IPO, each investor receives a costs basis that reflects the net asset value (NAV) on the date of purchase and tax considerations are based on the NAV.

How to Measure Performance
UIT and mutual fund share similar methods of performance measurement. Like mutual funds, UIT prices are determined by the value of the underlying securities in the fund. This value rises and falls with the value of the underlying investments. NAV only tells part of the performance story, as dividends and capital gains must also be taken into consideration when calculating the total return on the investment.

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