Unit Investment Trusts Explained: How They Work and Their Benefits

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Unit investment trusts are one of three primary types of investment companies, the other two being open-end funds — most of which are mutual funds — and closed-end funds. Most ETFs are open-end funds, but can also be structured as UITs.

Investors choose UITs for their transparency, diversification benefits and potential for long-term capital growth or income generation.

What Is a Unit Investment Trust?

A unit investment trust (UIT) is an entity that sells redeemable units of a portfolio — similar to mutual fund shares — comprised of professionally curated and unchanging investments for a set time period.

Definition and Structure

UITs are SEC-registered companies that oversee passively managed, fixed-portfolio funds with predetermined termination dates and stated investment objectives. 

How UITs Differ from Mutual Funds and ETFs

UITs are similar to familiar investments like mutual funds and ETFs, but essential differences separate them into their own investment class.

• Unlike mutual funds and many ETFs, UITs are passively managed.
• UITs have fixed portfolios and don’t change their holdings through frequent trades like actively managed funds. 
• Investors can redeem UIT units on any business day at the liquidation price, which might be higher or lower than the purchase price. In that respect, they are similar to mutual funds and less like ETFs. 
• The most substantive difference between mutual funds and ETFs — baskets of publicly traded securities that investors could purchase individually — is how UITs are created and how they work.

How Unit Investment Trusts Work

UITs share many similarities with ETFs and mutual funds, but their creation and operation set them apart.

The Creation and Issuance of UITs

UITs raise money from investors and use that capital to buy fixed portfolios of assets — similar to closed-end funds — that they market through one-time public offerings. They then issue redeemable units, similar to mutual funds, which the UIT will buy back at their net asset value (NAV).

The issuers of those units, called sponsors, choose the portfolio’s securities and register the company with the SEC. A trustee manages and oversees the UIT.

Holding Period and Maturity

UITs are also unique in that they have a finite holding period and defined termination date. According to FINRA, most mature in 15 months to two years from their inception date.

Distribution of Earnings

If applicable, UITs distribute dividends or interest payments monthly, quarterly or semi-annually. Most investors hold their positions until the maturity date, at which point the trust liquidates its portfolio and pays its investors cash distributions.

Types of Unit Investment Trusts

UITs offer a wide variety of portfolios for investors with different styles and goals. 

Equity UITs

Equity UITs focus on growth through capital appreciation rather than income. They’re comprised of stocks and index-based securities. 

Bond UITs

Bond UITs provide income for investors through periodic interest payments, as opposed to equity appreciation. They consist of fixed-income securities like municipal, corporate, and government bonds. 

Sector-Specific and Thematic UITs

Some specialized UITs focus on specific themes or sectors like healthcare, energy or technology. They’re less diversified and therefore often riskier than generalized equity UITs, but with greater growth potential.

Pros and Cons of Investing in UITs

As with any investment, UITs come with benefits and drawbacks that every investor must weigh according to their goals and risk tolerances. 

Advantages

• UITs provide diversification and can mitigate overall portfolio risk. 
• UITs provide transparency and certainty through fixed portfolios whose holdings aren’t changed or traded. 
• UITs are typically less expensive than actively managed funds or portfolios.

Risks and Drawbacks

• Once invested, UITs are fairly inflexible and can’t react to changing market conditions.
• Compared to ETFs, UITs have limited liquidity.
• Actively managed funds might have a higher potential for growth. 

How to Invest in a Unit Investment Trust

If you and your financial advisor think UITs might be right for you, take the following steps to put your money in play. 

Step-by-Step Guide

1. Research available UITs. Firms like Invesco and Guggenheim Investments list their offerings with detailed prospectus information on their objectives, holdings and performance. 
2. Evaluate the portfolio of any fund you’re considering so you understand its asset allocation, holdings, maturity period and redemption options.
3. Analyze all associated fees and expenses, including annual costs, sales charges and tax implications.
4. Contact a brokerage or financial advisor to purchase UIT units.
5. Monitor your investment and decide if you want to redeem it prematurely or hold it through maturity. 

Real-Life Examples of Unit Investment Trusts

Here are a few real-world examples of UITs geared toward different kinds of investors

Blue-Chip Stock UIT

The Blue Chip Value Portfolio Series 8 from Guggenheim Investments puts at least 80% of its holdings in blue chip companies on the Russell Top 200 Index. The portfolio consists of more than 97% large-cap U.S. companies, dominated by value stocks, and 2.71% REITs. Since its inception, its cumulative total return has been 10.4%. 

Municipal Bond UIT

The Invesco Investment Grade Municipal Trust, 20+ Year UIT holds a portfolio of tax-exempt municipal bonds. It’s designed not for growth but to preserve capital and deliver income exempt from federal taxation.

Technology Growth UIT

Advisors Asset Management created the Global Technology Portfolio to provide above average returns through capital growth from the foreign and domestic tech companies in which it invests. New to 2025, it is down more than 8% since inception.

UITs vs. Other Investment Options: Which Is Right for You?

Investors have the choice between UITs and more familiar ETFs and mutual funds. Here are the differences that can help you decide. 

UITs vs. Mutual Funds

Mutual funds are actively managed by a professional who can buy and sell securities and otherwise change the portfolio’s holdings to adapt to changing market conditions or strategy revisions. 

UITs, on the other hand, have fixed holdings that don’t change throughout the portfolio’s life. Because of this, mutual funds are more adaptable but also more expensive. 

UITs vs. ETFs

ETFs trade in shares on the open market throughout the trading day like individual stocks, making them fully liquid and easy to sell. UITs, on the other hand, have more limited liquidity and can be more difficult to convert to cash.

UITs vs. Individual Stocks and Bonds

When investors buy individual stocks and bonds, they tie their fortunes to a single company or municipality. UITs provide a hedge against risk through the diversification they achieve by investing in a broad range of securities.

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