Unit Investment Trust - UIT
Categories: Trusts and Estates
Unit investment trusts resemble mutual funds, except that they have a slightly different structure. It's like when two brands of cars are made at the same factory and use mostly the same parts. But a few tweaks here and there...and they get sold as completely different models.
Like a mutual fund (or its other cousin, the closed-end fund), UITs are considered investment companies. A UIT issues redeemable securities, like a mutual fund, with investors able to sell the units back to the UIT at an amount close to the net asset value of the fund.
A key distinguishing characteristic is that a UIT will have an end date. The trust will set a termination date at which it will dissolve. However, these can be decades into the future...meaning the UIT doesn't necessarily become a short-term investment just because it has a pre-set end date.
Another key characteristic is that unit investment trusts don't actively manage their portfolios. They buy a group of stocks or bonds at the start, and just stick with them. There's no reading of the market or moving in and out of winners and losers. They just buy a certain basket of investments at the start and set an end date. Then they let things ride. As such, UITs don't have a lot of expenses to deal with. They don't have boards of directors, or investment advisors, or other executive hangers on.