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Envision a lost treasure trove of investment possibilities, the keys to which lie in diversity, expert management, and openness. Unit Investment Trusts (UITs) are a financial landscape hidden gem, and we welcome you to their world. Are you prepared to start this thrilling adventure?
What is a unit investment trust?
A Unit Investment Trust (UIT) is curated by a team of experts, including an investment advisor, who carefully select assets for the trust’s portfolio. Investors then receive units, functioning like shares, indicating their ownership. For instance, a UIT specializing in technology stocks may offer investors units representing a share in a diversified portfolio of tech companies.
Consider your investing goals, risk tolerance, taxes, and costs before buying a UIT unit. UIT investors risk losing principal and the trust’s portfolio underperforming in comparison to other asset classes.
A factual instance includes Guggenheim’s Global 100 Dividend Strategy Portfolio Series 14 (CGONNX). The purpose of establishing this UIT on March 15, 2018, was to generate dividend income. A hundred diversified positions were included, with a portion allocated to large-cap stocks (45.16%), mid-caps (26.44%), and small-caps (27.00%).
Types of unit investment trust
- Equity trusts – These UITs invest in shares of stock.
- Fixed-income trusts – These UITs invest in debentures or other fixed-income assets.
- International trusts – These UITs invest in foreign securities, providing investors with international exposure.
- Sector trusts – These UITs target certain industries, like healthcare, technology, or utilities.
- Index trusts – The goal of these UITs is to mimic an index’s performance.
The benefits and risks of each UIT vary and fit different investment goals.
Advantages of investing in unit trusts
- Diversification: Diversifying across asset classes and industries helps UITs reduce investment risk.
- Professional management: Skilled investors choose and keep tabs on the assets in a unit investment trust.
- Transparency: For investor protection, UITs must disclose their holdings daily.
- Accessibility: Due to UIT unit sales, investors can diversify with a low initial investment.
- Income potential: A common objective of UITs is to produce a steady stream of income, be it interest or dividends.
Disadvantages of investing in unit trusts
- Management Fees: Professionals manage unit trusts, but their fees can cut profits.
- Lack of Control: The fund manager makes all unit trust investment decisions without investor input.
- Potential for Underperformance: Unit trusts offer diversification, but investors should not expect them to outperform their benchmark or the market.
Comparing UITs with mutual funds and ETFs
|A fixed portfolio is used by passively managed UITs.
|Fund managers make frequent purchases and sales of assets on behalf of mutual funds.
|Both actively managed and passively managed exchange-traded funds (ETFs) are available.
|Every day, at the NAV price, UITs are bought and sold.
|Equally traded at the NAV price once daily are mutual funds.
|Daily, at market price, exchange-traded funds (ETFs) are traded on an exchange in the same way as stocks are.
|Due to their passive management, UITs usually have lower fees.
|Because of the hands-on nature of mutual fund management, fees can be rather high.
|Particularly for index ETFs, the fees associated with ETFs tend to be lower.
Contrary to UIT, a closed-end fund with a set number of shares is known as an Investment Trust. Similar to how stock in a company is traded, these shares are also traded on the stock market. The key difference between unit trust and investment trust lies in their structure. You can think of unit trusts as open-ended and investment trusts as closed-ended. Investors’ ability to purchase and sell units or shares in these trusts is affected by this distinction.
Comparing a unit investment trust vs. ETF, both provide diversification and expert management. However, UITs are traded at NAV, but ETFs can be traded 24/7.
How to invest in a unit investment trust?
Research: Do your research before investing in UITs. It requires investment goals, portfolio assets, maturity date, and UIT fee knowledge. The investment firm’s reputation and UIT performance are also important.
Find a broker: UITs are usually bought through brokers. Find a UIT broker. Before choosing, consider the broker’s fees, customer service, and platform usability.
Choose a UIT: Choose a UIT that suits your research, investing, risk, and timeframe. Prospectuses are legal documents that detail unit investment trusts (UITs). Please read this entire document before choosing.
Purchase units: After choosing, tell your broker to buy units. At the close of each trading day, the price per unit will be determined by the net asset value.
Monitor your investment: Buying UIT units requires regular investment monitoring. It involves tracking unit value and UIT performance. Stay informed of market changes and portfolio company financials that could affect the UIT.
Unit Investment Trusts (UITs) offer strategic diversification, professional management, and transparency in the complex investment landscape.
Knowing your investment is the first step to becoming financially successful, regardless of your level of experience as an investor. So, are you prepared to make the move with UITs?
Investments encompass various types such as stocks (ownership shares), bonds (debt securities), mutual funds (professionally managed pools), ETFs (index-tracking funds), real estate (direct or via REITs), options and futures (contracts for asset transactions), and commodities (physical assets like gold, oil). Each type carries distinct risk and return traits.
Assessment: Understand your financial situation, goals, and risk tolerance.
Planning: Develop a strategic investment plan aligned with your goals.
Implementation: Execute the plan by investing in suitable assets.
Monitoring: Regularly review the performance of your investments.
Adjustment: Make necessary changes to your portfolio based on market conditions or changes in your goals.
A unit trust is a pooled investment fund where investors contribute funds to a trust. Professional fund managers then use these funds to invest in a diversified portfolio of assets such as stocks, bonds, or other securities. Investors receive units representing their share of the overall fund, and returns are distributed accordingly. A unit investment trust (UIT), on the other hand, is a subset of the unit trust (UT).
A trust typically involves three key roles: the ‘Settlor’, who creates the trust; the ‘Trustee’, who manages the trust; and the ‘Beneficiary’, who benefits from the trust. In terms of membership, a trust can be formed and registered with a minimum of 3 members and a maximum of 21 members.
A Unit Investment Trust (UIT) is controlled by a trustee, typically a financial institution like a bank or an investment company. The trustee is responsible for managing the trust under its stated investment objectives and ensuring compliance with regulatory requirements. The trustee also oversees the distribution of income to unit holders.