What is a Unit Investment Trust?
A unit investment trust (UIT) is a registered investment company that buys and holds a generally fixed portfolio of stocks, bonds, or other securities. Investors purchase units of the trust which represent an undivided ownership in the entire portfolio. UITs have a termination date that can range from one year to thirty or more years, depending on the type of holdings in the portfolio, and can fill a variety of investment goals and risk tolerance levels.
A unit investment trust (UIT) is a registered investment company that buys and holds a generally fixed portfolio of stocks, bonds, or other securities. “Units” in the trust are sold to investors (unitholders) who receive a share of principal and dividends (or interest).A UIT has a stated date for termination that varies according to the investments held in its portfolio. A UIT investing in long-term bonds may remain outstanding for 20 to 30 years. UITs that invest in stocks may seek to capture capital appreciation over a period of a year or a few years. When these trusts are dissolved, proceeds from the securities are either paid to unitholders or reinvested in another trust.This brochure discusses how UITs operate and provides a general overview of the different types of UITs.
One of the confusing things about exchange traded funds (ETFs) is that they can take several forms, the most common of which is the unit investment trust. Some descriptions of ETFs just describe them as unit investment trusts and leave it at that. Of course, defining one term (exchange traded fund) with another that is equally if not more obscure is not very helpful. So, we’ll try to explain what a unit investment trust is.
Unit investment trusts are fixed portfolios that are composed of securities that are understood to be income producing in nature. The contents of the portfolio are considered fixed in that they may not be sold, exchanged, or otherwise removed from the portfolio unless the security in question is called. Investors may purchase a fraction or unit of the trust, and enjoy the benefits of any income that is generated by the securities contained in the trust. In the United States, the concept of a unit investment trust dates back to 1940. It was during that year the idea for the unit investment trust was first registered with the Securities and Exchange Commission. The idea was to create a trust structure that would be permanent in nature and would not involve any buying or selling of securities within the trust prior to the security reaching maturity or being called. This arrangement would allow investors to own a portion or stake in the unit investment trust by purchasing a portion of the
