A unit investment trust (UIT) is a type of investment vehicle consisting of a fixed portfolio of securities held by a trustee or trust company for a specific period without any active management. It is created by a financial institution or investment company and investors can purchase units of the trust, which represent proportionate ownership in the underlying securities.
Unlike mutual funds or exchange-traded funds (ETFs), unit investment trusts do not typically have a professional portfolio manager who actively buys, sells, or adjusts the composition of the securities held in the trust. The securities within the trust are selected according to a predetermined investment objective or strategy, which is disclosed to potential investors.
Unit investment trusts are often composed of stocks, bonds, or a combination of both, depending on the investment objectives of the trust. They can be focused on a specific sector, industry, or market index. One distinguishing feature of UITs is that the portfolio composition is fixed at the time of creation and generally does not change except for the maturing or sale of securities within the trust.
Investors receive returns in the form of capital appreciation on the underlying securities, interest payments, or a combination of both. UITs typically have a defined termination date, at which point the assets are sold and the proceeds are distributed to the unit holders.
Overall, unit investment trusts offer investors a way to gain exposure to a specific portfolio of securities without active management, providing a passive investment option with predetermined investment objectives.
