Unit Investment Trusts
What is a Unit Investment Trust (UIT)?
A UIT is a fixed portfolio of professionally selected
securities. Investors purchase units of a trust, which represent an
undivided ownership in the entire portfolio. The portfolio of a unit
investment trust is fixed at the date of deposit, which gives the investor
knowledge of exactly what is in the portfolio, when the trust matures, and
the expected income that the trust is likely to generate.
There are three main categories of UITs:
Portfolios of equity securities typically fall under one of three
- Strategy Trusts: The
main approach to portfolio selection is to follow a specific
investment strategy, such as the Dow Dividend theory of investing. An
investor should consider their ability to participate in successive
trust series as most strategies depend on a long term investment
- Sector Trusts: These
trusts are portfolios of companies doing business in one sector such
as an Energy Trust, which invests in 20-25 leading energy companies, for
investors who wish to participate in the energy industry and do not
wish to assume the risk of investing in only one company. Sector
Trusts may entail greater risks since their investments are
concentrated and may lack diversification.
- Index Trusts: These
trusts, with a duration of 5 to 6 years, are
portfolios of stocks based on certain indices in the market (i.e.
NASDAQ 100, S&P 100, Dow 30). Suitable for investors with a
long-term investment horizon.
- Tax-Free Fixed
Income: Portfolios of municipal bonds providing monthly or semi-annual
- Taxable Fixed
Income: Portfolios of U.S. Treasury, U.S. Agency, and corporate issues
that provide monthly or semi-annual income.
Some Attractive Features for Unitholders
- Scheduled maturity
- Daily liquidity if sold
prior to maturity, the trust may be worth more or less than its
- Low minimum investment