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What is a Unit Investment Trust?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 September 2016
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    Conjecture Corporation
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Unit investment trusts are fixed portfolios that are composed of securities that are understood to be income producing in nature. The contents of the portfolio are considered fixed in that they may not be sold, exchanged, or otherwise removed from the portfolio unless the security in question is called. Investors may purchase a fraction or unit of the trust, and enjoy the benefits of any income that is generated by the securities contained in the trust.

In the United States, the concept of a unit investment trust dates back to 1940. It was during that year the idea for the unit investment trust was first registered with the Securities and Exchange Commission. The idea was to create a trust structure that would be permanent in nature and would not involve any buying or selling of securities within the trust prior to the security reaching maturity or being called. This arrangement would allow investors to own a portion or stake in the unit investment trust by purchasing a portion of the total package. All investors would then share in any profits generated from the securities contained within the unit investment trust.

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This SEC approved model for a trust arrangement has proven to be profitable for many investors over the years. In many instances, a unit investment trust will be composed of a series of municipal bonds, making it possible for the trust to represent an investment opportunity that is considered very stable. Rather than purchasing individual bonds, the investor can acquire units related to the overall portfolio and enjoy income from the activity of all the bonds included in the trust. Generally, the investment company that oversees the unit investment trust is responsible for providing financial reports to the investors, as well as processing the payments due to each investor associated with the trust.

A unit investment trust can be a great way for a new investor to engage in deals with relatively little risk and still make money. Many trusts of this nature are structured so that purchasing a single stake or unit of the portfolio requires only a small investment, in some cases no more than $1,000 US Dollars. As with any type of investment, it is sound business procedure for the investor to investigate the individual bonds or other securities contained within a unit investment trust, and be comfortable with the potential each component has for producing income.

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