A unit investment trust is a non managed investment company, where a set rate of return is calculated based on purchased securities. The UIT will pay dividends paid to the number of units an investor owns.
When investors buy Mutual Funds or Closed End Funds, they are looking for diversity and professional management from an investment adisor who is actively trading the account. UIT investments are divided by units and are normally invested in fixed income.
Unit Investment Trusts can perform very well in certain market times and can give a guaranteed rate of return - which is their main appeal.
The trust selects and invests into a portfolio of fixed income securities - including bonds. There is no active trading or management of the securities in the UIT.
This is when the money is invested into mutual fund shares to get a more aggressive rate of return.
Unit Investment Trusts were established as non managed investment companies under the investment co. act of 1940. That act defined 3 types:
- Management Companies - Open end mutual funds and closed end funds
- UIT - Unit Investment Trusts
- Face Amount Certificates - These are now obsolete.
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