1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

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

 

 

 

 


25 Investments: Venture Capital
Related Articles
  1. Investing

    Investing in a Unit Investment Trust

    Unit trusts offer professional portfolio selection and a definitive investment objective.
  2. Investing

    Unit Investment Trusts Market: 3 Trends in 2016

    Learn more about unit investment trusts (UITs), and discover some of the most common trends in the UIT market to date in the year 2016.
  3. Investing

    Top 10 Investments For Baby Boomers

    Find out which investments are most likely to help you achieve your post-work income goals.
  4. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  5. Investing

    Mutual Fund Vs ETF: Which is Right For You?

    Want to invest but don't understand the difference between investment products? Here we explain ETFs vs. Mutual Funds and which is right for you.
  6. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex. Here's what you'll need to discuss with your lawyer.
  7. Financial Advisor

    Irrevocable Trusts: New Trends You Need to Know

    Several improvements and additional provisions have been added to irrevocable trusts in recent years making them considerably more versatile than before.
  8. Financial Advisor

    Advisors: Tips for When to Employ Living Trusts

    Revocable living trusts accomplish estate planning objectives that aren't possible with a will. Here are some of the cases that show when to use a trust.
  9. Managing Wealth

    Pick the Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
  10. Retirement

    Living Trusts vs. Simple Wills: A Comparison

    A look at wills versus living trusts and when to choose one over the other.
Frequently Asked Questions
  1. What are some examples of horizontal integration?

    Some recent, real-life examples of horizontal integration.
  2. What does the current cost of living compare to 20 years ago?

    Find out how inflation has affected the dollar since 1998, and how the cost of living has changed above and beyond what can ...
  3. What does negative shareholders' equity mean?

    A negative balance in shareholders' equity, also called stockholders' equity, means that liabilities exceed assets and can ...
  4. Are retained earnings listed on the income statement?

    Retained earnings are the cumulative net earnings or profit of a company after paying dividends and can be reported on the ...
Trading Center