Unit Investment Trust – Definition

Cite this article as:"Unit Investment Trust – Definition," in The Business Professor, updated September 20, 2019, last accessed August 14, 2020, https://thebusinessprofessor.com/lesson/unit-investment-trust-definition/.

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Unit Investment Trust (UIT) Definition

A unit investment trust (UIT) refers to an investment company that offers investors a fixed portfolio that have a definite life or specified life-span. A UIT can be an exchange-traded mutual fund  or closed-end fund that offers a diversified portfolio to investors for a stipulated time. In exchange for investing in the fixed portfolio, investors receive dividends or capital appreciation.

A Little More on What is a Unit Investment Trust (UIT)

Generally, the fixed portfolio offered to investors by a unit of investment (UIT) comprises of stocks and bonds. With the fixed or diversified portfolio, investors with low capital can make their investment. This is because investing in these fixed and diversified portfolios require a little investment for a start.

A UIT is a grantor trust, it could also be a regulated (registered) investment corporation (RIC). Investment advisors sell UITs to investors and they can redeem the units at the specified time.

How Investments Are Sold

Investment advisors sell UITs to investors. At the set time, investors can redeem the units to the trust or fund at a Net Asset Value (NAV). The NAV at which the units are redeemed is calculated as;

NAV= total value of the portfolio / the number of shares or units outstanding

Units can be redeemed by investors directly or with the help of an investment advisor. NAV is calculated at every trading day. However, investors sell closed-end funds in the secondary market at the current market price, they are not redeemable.

The Differences Between UITs and Mutual Funds

Mutual funds are different from unit investment trust (UIT). Mutual funds seek to outperform the current investment benchmark in the market, to achieve this goal, portfolio managers can buy and sell the securities that are in the portfolio.

 

Also, mutual funds are open-ended funds while UITs are close-ended funds with a fixed portfolio that had a definite life. UITs pay dividends or interest on units purchased until stocks and bonds in the portfolio are sold at the specified date.

References for “Unit Investment Trust (UIT)

https://www.investopedia.com › Investing › Mutual Funds › Mutual Fund Essentials

https://en.wikipedia.org/wiki/Unit_investment_trust

www.businessdictionary.com/definition/unit-investment-trust-UIT.html

https://investinganswers.com/dictionary/u/unit-investment-trust

Academic research for “Unit Investment Trust (UIT)

[PDF] Action Research on Funds Governance with Employee’s Bank Trust’s Unit Investment Trust Funds, Ramos, R. B. (2016). Action Research on Funds Governance with Employee’s Bank Trust’s Unit Investment Trust Funds.

Applicants’ Legal Analysis and Conditions: 1. Sections 26 (a)(2)(C) and 27 (c)(2), as herein pertinent, prohibit a registered unit investment trust and any depositor …, Katz, J. G. Applicants’ Legal Analysis and Conditions: 1. Sections 26 (a)(2)(C) and 27 (c)(2), as herein pertinent, prohibit a registered unit investment trust and any depositor thereof or underwriter therefor from selling periodic payment plan cer.

Emerging Alternatives to Mutual Funds: Unit Investment Trusts and Other Fixed Portfolio Investment Vehicles, Harman, T. S. (1987). Emerging Alternatives to Mutual Funds: Unit Investment Trusts and Other Fixed Portfolio Investment Vehicles. Duke LJ, 1045.

Unit Investment Trusts: Structure and Regulation Under the Federal Securities Laws, Gould, J. B., & Lins, G. T. (1987). Unit Investment Trusts: Structure and Regulation Under the Federal Securities Laws. Bus. Law., 43, 1177.

Fiduciary Standards of Conduct Under the Investment Company Act of 1940, Greene, L. M. (1959). Fiduciary Standards of Conduct Under the Investment Company Act of 1940. Geo. Wash. L. Rev., 28, 266.

Investment patterns in Singapore’s central provident fund system, Koh, B. S., Mitchell, O. S., Tanuwidjaja, T., & Fong, J. (2008). Investment patterns in Singapore’s central provident fund system. Journal of Pension Economics & Finance, 7(1), 37-65.

The Regulation of Mutual Fund Names and the Societal Role of Trust: An Exploration of Section 35 (d) of the Investment Company Act, Barnett, L. D. (2004). The Regulation of Mutual Fund Names and the Societal Role of Trust: An Exploration of Section 35 (d) of the Investment Company Act. DePaul Bus. & Comm. LJ, 3, 345.

Federal Income Taxation of Regulated Investment Companies, Kern, W. A. (1966). Federal Income Taxation of Regulated Investment Companies. Notre Dame Law., 42, 29.

The Management Fee Problem and The Investment Company Act of 1940, Gopman, H. Z. (1969). The Management Fee Problem and The Investment Company Act of 1940. Am. Bus. LJ, 7, 153.

Factors influencing unit trust performance, Tng, C. S. (2006). Factors influencing unit trust performance.

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