A Unit Investment Trust (UIT) is a registered investment company, where you can obtain a fixed portfolio of equity and fixed income securities. Professional money managers choose those securities for you to accomplish the stated investment objectives of the trust for a set period of time. You can purchase the investment portfolio of the UIT in the form of units, comprising your undivided stake in the total portfolio.
There are three types of the UIT income defined:
- Taxable fixed income - portfolios of the U.S. Treasury, U.S. agency, and corporate issues that provide a monthly, quarterly or semi-annual income.
- Tax-free fixed income - portfolios of municipal bonds that grant a monthly or semi-annual tax-free income.
- Equities - portfolios of equity securities that guarantee a potential for a capital appreciation and/or income.
Depending upon the type, you receive a regular income from the trust. Fixed portfolio management is created only for you to represent a relatively predictable and stable stream of income over the life of the trust. If you are ready for higher returns and higher risks correspondingly, you may address equity UITs, which help to achieve specific investment objectives through portfolios with a greater growth potential. A fixed portfolio and fixed income do not mean a low risk either, though it is defined. You also should not forget about a unit benefit, which is a method of calculating an employer's contribution to an employee's defined benefit plan. To calculate the contribution, an employer multiplies an employee's years of service by a percentage of his or her salary.
Purchasing a fixed portfolio, you inevitably deal with a fund selection, strategic risk control and risk aggregation. When selecting fixed income funds, a performance must be risk-adjusted. It is easy to generate attractive returns by taking risks, but if your fund manager is able to report his risks - he understands them and is capable of managing them. With your fixed portfolio to achieve a stable real value of the capital with a minimum risk, a riskdata system independent model can help you a lot. The riskdata system identifies a highly liquid yield curve in each country and currency - swaps, government bonds and interest rate futures - enabling the effective risk transparency.
It is great when you have an ability to control your strategic risk of your manager's liabilities and your assets. Controlling the geographical diversification of his fixed portfolio investments through the US, Europe, Asia, emerging markets and the variety of markets, you can receive the most optional and diversified portfolio. At the same time, you can get your returns, guaranteed only if your manager is an expert in each segment of the markets and an international expert as well.
The Unit Investment Trusts present you the ability to have an individual investor diversification, a professional investment selection, distributions and reinvestments and rollover options - all within a fixed portfolio of securities. You only use your chance and professionals within a reach. When having such a professional, you will get you investment objectives, goals and risk tolerance identified, and that is also vitally important. Together with such a manager, you can decide if UITs should be incorporated into your investment strategy and which UITs may be right for you and your fixed portfolio.