Unitized Fund: What it is, How it Works, Considerations

What is a Unitized Fund

A unitized fund is a type of investment fund structure that uses pooled money to invest with individually reported unit values for investors. Assets in the pool are managed to a specific objective, often with concentration in one stock. Investors are provided with a daily unitized value for their portion of the investment.

Unitized stock funds increase the efficiency of employee stock offerings in benefit plans such as ESOPs. Their unit price can be generally compared to the price of the company's stock

Key Takeaways

  • A unitized fund is a way to pool assets from several investors often in a focused investment such as a single stock.
  • Pensions and employee stock ownership plans (ESOPs) that offer workers company stock often use a unitized fund structure to increase efficiency in managing these shares.
  • Unitized funds will typically hold cash or other assets in a small amount in addition to the focused investment, so that the unit value will often differ slightly from the actual shares by themselves.
  • Insurance companies in the U.K. may also use a unitized fund structure to segregate managed investments on behalf of policyholders.

How Unitized Funds Work

Unitized funds are often used in employee benefit plans such as pensions. Employers can offer unitized stock funds that include the company’s publicly traded stock. This type of unitized fund will typically also include some cash. A unitized fund provides for greater efficiency in managing company stock purchase plans offered to investors. Since the fund is composed of company stock with some cash holdings its unit value will vary from the company’s stock share value in the market.

Pension funds may also use a type of unitized structure to offer convertible investments between defined benefit and defined contribution plans. Participants are given the option to set up individual sub-accounts within a unitized structure. This gives investors greater flexibility to transfer and exchange assets within their plan.

Unitized Funds in Insurance

Insurance companies may also use unitized funds. The fund represents a collective investment with unit-linked fund options for the investors. Funds invested are associated with investment towards an insurance plan. In a unit-linked fund, the investor designates investment in a specified unit-linked fund which is part of a broader collective investment. Unit-linked fund investments vary across the fund however the investments of many unit-linked funds are managed collectively together. An investor receives reporting on their individual unit-linked fund investment which may vary from the values of other funds in the collective.

The total value of all the funds comprehensively is reported as the total assets for the collective investment. These types of funds can usually be found in offshore financial centers in the UK and the British Isles.

Unitized Fund Considerations

Generally, an investment company may also use a special unitized fund structure for fund management if it complies with securities regulation in their individual country. Overall, the structure can provide for efficiency in purchasing shares of securities in the fund. With this type of fund, investors’ assets are pooled and the fund calculates a unit value for each participant. The unit value typically serves as a comparable value or a personal balance for the investor.

Unitized funds are typically offered as an alternative to mainstream investment options. Investors should closely examine the prospectus of these types of funds to understand their structure. They can provide for efficiencies when managing pooled assets investing in concentrated positions. In other cases, they require complex record-keeping and may include high administrative expenses.

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