Unit Investment Trusts

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Unit Investment Trusts or UIT refers to the funds that offer fixed or unmanaged portfolio of securities but have definite life. These trusts are usually formed by some sponsors and are sold to investors by brokers or agents. The portfolios of securities of Unit Investment Trusts comprise one of the numerous types of securities whereas two of the major types include the stocks or equities and bonds or fixed income trusts.

Compared to mutual funds, Unit Investment Trusts are usually formed for a certain period of time and have fixed portfolios, which means that the securities of Unit Investment Trusts cannot be sold or buy new ones except if there would be any particular limited situations of the company. These situations may include filing of bankruptcy or selling of the property or asset due to merging.

Stocks as one of the major types of Unit Investment Trusts are generally designed in providing capital appreciation as well as dividend income. This type of Unit Investment Trusts usually issued plenty of shares or units if necessary for a given period of time prior to the closing of the primary offered period. Meanwhile, the equity trusts of Unit Investment Trusts has termination date that is set whereas the trust funds are liquidated and distributed to the unit or share holders in the proceeds. This fund is called the net asset value. Also, the unit or share holders may have the option of reinvesting their principal.

Bond trusts as one of the major types of Unit Investment Trusts usually issue a particular set number of units or shares and during the time that they are being sold to the investors. Apparently, the selling to investors usually occurs once the primary offering of the trusts is already closed. Bond trusts always pay the monthly income, which is normally in relatively consistent amounts. With this, the initial bond in the bond trusts matures. Once the initial bond matured, funds from the redemption are being distributed to the clients through prorate data return of the principal amount. From here, the bond trusts will continue to pay the amount of new monthly income until the time that the succeeding bond is redeemed. This flow continues until the time that all bonds are liquidated out of the trusts. Generally, bond trusts are applicable for people who seek for stability of principal amount as well as current income.

Unit Investment Trusts may consist of either a Grantor Trust or a Regulated Investment Corporation or the RIC. A Grantor Trust is where investors are granted the proportional ownership with the underlying securities. While in a Regulated Investment Corporation or the RIC is where the joint owners are also the investors. The Unit Investment Trusts are created through a document called the Trust Indenture, which is being drafted by the sponsor of the fund as well as the evaluator and the trustee.