A Unit Investment Trust (UIT) refers to a type of investment company that offers a fixed portfolio of stocks or bonds to investors. It is legally organized as a trust and provides an opportunity for individuals to invest in a diversified selection of securities.
UITs have a unique structure compared to other investment vehicles such as mutual funds or exchange-traded funds (ETFs). They issue a fixed number of units to investors, with each unit representing a proportional ownership interest in the portfolio's assets. These units are usually offered for sale during an initial offering period and can be bought from the trust or on the secondary market.
UITs typically have a fixed lifespan, often ranging from a few years to several decades. During this period, the investment company remains passive and does not actively manage the portfolio. Instead, the securities are selected at the inception of the UIT and held until maturity or redemption, providing a predetermined level of diversification.
One key characteristic of UITs is their redeemable nature, allowing investors to sell their units back to the trust at their net asset value (NAV). Unlike open-end mutual funds, UITs do not issue new units or redeem existing units after the initial offering period.
UITs are often categorized into two main types: equity trusts, which primarily invest in stocks, and fixed-income trusts, which primarily invest in bonds or other debt instruments. They can provide investors with exposure to various market sectors or asset classes while offering transparency and a defined investment strategy.
