A unit investment trust (UIT) is a fixed package of stocks or bonds. An investment professional picks the stocks and bonds based on the UIT’s goals.
When a UIT owns bonds, it’s called a fixed-income unit investment trust. Fixed-income UITs are typically categorized into “taxable” or “tax-exempt.”
Taxable trusts own corporate, U.S. government or taxable muni bonds, and tax-exempt trusts generally own tax-exempt municipal bonds.
Because each fixed income UIT typically holds at least 20 bonds, you get instant diversification, even if you only buy one UIT. And not only does a UIT hold multiple investments, the investments can also be from a wide variety of issuers, sectors or geographies.
Remember, fixed income UITs are portfolios of professionally selected bonds picked by an investment professional with the UIT’s goals in mind.
You may be thinking that UITs sound very similar to mutual funds. However, there are some key differences. Like mutual funds, fixed income UITs are portfolios of professionally selected stocks or bonds. However, unlike mutual funds, UITs are fixed – which means once those bonds are chosen, they typically don’t change. Because these securities aren’t actively managed, investors have more visibility into what they own. UITs can usually be sold on any business day at the current market price, which may be more or less than what was paid initially for the investment.