Unit investment trusts (UITs) are baskets of stocks and/or bonds that are preselected by investment professionals to meet a specific goal (although there is no guarantee the UIT will meet its objectives).
Fixed portfolios. The investments within the unit trusts are fixed for a predetermined time, which means the investments do not change unless a company is bought or merged with another company or a company's financial condition becomes irreparable. This means you always know what you own.
Buying units.
Fixed portfolios. The investments within the unit trusts are fixed for a predetermined time, which means the investments do not change unless a company is bought or merged with another company or a company's financial condition becomes irreparable. This means you always know what you own.
Buying units.
Unit investment trusts are established for specified periods of time and liquidated to unit trust holders on their predetermined termination dates. A limited number of trust units are offered during presale purchase periods, which can last anywhere from one day to one year. During that time you can indicate an interest in buying units of the trust.
Units of a unit investment trust can be bought for as little as $1,000 ($500 for an IRA). Owning a unit of the trust means you own a proportional share of all the investments within the portfolio. It also means that, for a fraction of the cost, you can have diversified investments (including stocks and/or bonds) that would normally require $100,000 or more to purchase on their own.
Selling units.
Units of a unit investment trust can be bought for as little as $1,000 ($500 for an IRA). Owning a unit of the trust means you own a proportional share of all the investments within the portfolio. It also means that, for a fraction of the cost, you can have diversified investments (including stocks and/or bonds) that would normally require $100,000 or more to purchase on their own.
Selling units.
You can sell your trust units back to the trust at any time for their net asset value (based on the value of the underlying securities) less any remaining deferred sales charges, which provides you with the liquidity you may need. Some unit investment trusts then resell those "returned" units to other investors.
Because the market value of the trust units fluctuates with changes in market conditions and the value of the underlying securities, shares of the unit trust may be worth more or less than their original price when sold.
Because the market value of the trust units fluctuates with changes in market conditions and the value of the underlying securities, shares of the unit trust may be worth more or less than their original price when sold.
Why would one invest in a unit investment trust as opposed to a closed or open-end mutual fund?
ReplyDeleteDear W.P Thatcher, in my opinion, Listed Unit Trust Scheme (Closed-End-Fund) has units quoted and traded on a stock exchange. The price of these units will fluatuate daily based on the supply of, and demands for, units from investor, i.e. it is the investors in the market who determine the buying and the selling price of the units.
ReplyDeleteUnlisted Unit Trust Scheme (Open-Ended-Fund) whose units are not quoted on a stock exchange. The selling and repurchase unit price are arrived at by first valuing the investments of Unit Trust Scheme and determining its NAV, and then dividing by the number of units in circulation.
A major disadvantage of Closed-End Fund is that the market price of a unit in UTS usually varies from the NAV of a unit. Generally, the NAV per unit of listed UTS is greater than the market price as it is usually traded at a discount. There are many reasons for this but, put simply, the price of any listed securities is determined by buyers and sellers in the market. The price of listed UTS reflects this rather than the NAV of the UTS. In unlisted UTS, the unit’s price is based on the NAV, so no significant discount or premium can apply.
Personally, I would say, even though in general (not necessarily) the Closed-End-Fund would give higher return of one investment, an individual should carefully assess his level of risk tolerance. In addition one should also carefully study his investment objective either it is a short, medium or long term types of investment.
For example an individual who are planning for his child education or his retirement fund, it is advisable for him to go for Unlisted UTS (Open-End-Fund) as the risk is lower. On the other hand an individual who planned maybe to purchase a dream house which he currently already has a house let say in 10 years time then he may be can choose to invest in Listed Unit Trust Scheme (Closed-End-Fund) as it might give faster and higher returns.
I hope this can help our readers in deciding which types of fund to invest in UTS and PLEASE…PLEASE…PLEASE read the UTS prospectus carefully before make any investment….
Best regards,
Pak Maeh