The Pros and Cons of Buying Unit Investment Trusts

The Wall Street Journal

What are UITs and what are the pluses and minuses?

Unit investment trusts, or UITs, are a kind of investment fund that’s a cross between an actively managed fund and a set portfolio of investments.

Investors buy units of a trust, or ownership interests in the underlying investments held by the UIT—which can include stocks, bonds, preferred stock, American depositary receipts (ADRs), real-estate investment trusts (REITs), master limited partnerships, closed-end funds (CEFs), business development companies (BDCs), exchange-traded funds (ETFs) or other investments.

The trust can distribute dividends and interest. At the end of the trust’s life, investors can receive cash equal to the net asset value of the units, in some cases receive an in-kind slice of the investments held by the trust, or they can roll the current value of their investments into another trust at a reduced sales charge. UITs are issued with a fixed term. For trusts that hold equities, for example, the range generally is one to two years.

“While it is not common, a trust may terminate early as described in the prospectus,” says Kevin Mahn of Hennion & Walsh, which sponsors UITs.

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