What is an Estimated Current Return
Estimated current return is the return that an investor can expect for a unit investment trust over a short period of time, for instance annually. It is actually an estimate of the interest that the unit holder can expect to receive. The return can be found by taking the estimated annual interest income from the securities of the portfolio and dividing by the maximum public offering price, net of the maximum sales charge for the trust.
BREAKING DOWN Estimated Current Return
The estimated current return is not as exact as the estimated long-term return. Also, typically the estimate is more susceptible to interest rate risk during the life of the portfolio. Fund managers reporting estimated long-term return will be able to arrive at the estimate because the underlying fund investments have a specified return that is given at the time of initial investment. Notably, interest rate risk is most relevant to fixed-income securities; a possible rise in market interest rates presents a risk to the value of fixed-income securities.
By definition, the estimated long-term return is a hypothetical measure that gives investors an expectation for the return over the life of an investment. The estimated long-term return can be a helpful consideration when determining whether to invest in a fixed-income product.
It is most often quoted in investments with fixed-income securities and a fixed duration. For example, a unit investment trust (UIT) is an investment company that offers a fixed portfolio of stocks and bonds as redeemable units to investors for a specific period of time. It is designed to provide capital appreciation, and in some cases, dividend income.
Unit investment trusts, along with mutual funds and closed-end funds, are defined as investment companies. When looking to invest in this type of trust, an investor should be shown the estimated long-term return as well as estimated current return. The measure is comparable to a savings account rate or the rate of interest quoted for a certificate of deposit.
Estimated Current Return and Transparency
Unit investment trusts, and specifically UIT portfolios with a high allocation to fixed-income investments, can be a good way for investors to access an investment vehicle that can provide some measures of transparency for long-term returns. These investments are one of three formal investment companies regulated by legislation from the Investment Company Act of 1940, which requires investment company registration and regulates the product offerings issued by investment companies in the market. Unit investment trusts are created by a trust structure and issued with a fixed maturity date.