How to Invest in Unit Trusts


Unit trusts have long been considered low relative risk, low-return investments. They are typically purchased by low-risk investors. Unit trusts are usually issued for purchase into retirement accounts, IRA accounts, and for investors seeking income through either corporate bonds or municipal bonds and occasionally preferred stock. Know that unit investment trusts are passive investments. When investing in a unit trust there are strict rules limiting the sale of assets due to declining investment possibilities and in the case of bonds, early redemption. Therefore, know and trust the principals who are purchasing the funds on your behalf. Their initial decisions are crucial to the success of the unit investment trust.

Understand your legal position before investing in a unit investment trust. Know that a unit investment trust is both a mutual fund and an investment fund. Being a mutual fund allows profits and dividends and losses to be passed to the individual investors. The trust portion allows each holder to share in the beneficial interests of the fund. It is important to know your standing with respect to the trust. All public unit investment trusts must be registered with the Securities and Exchange Commission.

Know that unit investment trusts are appropriate for securities that tend to have steady asset values. Understand the type of trust best for your needs. Most unit investment trusts that are public are issued for bonds -- both municipal and corporate, and preferred stock. Private unit investment trusts are used for property, securities, mortgages and cash notes.

Buy a public UIT through your broker. You will pay a sales charge called a front load. Typically this cost ranges from 3 percent to 5 percent. Compare these costs to that of load mutual funds and no-load mutual funds. No-load funds are usually the best choice to make as a cost-effective investment. However, the no-load and load mutual fund usually have no termination date. UITs expire with the final maturity of its last security.

Know all the additional expenses of a fund. Most unit investment trusts have annual expenses due to registration requirements, management maintenance fees, and they may have exit fees. Funds accumulated are usually disbursed on a monthly basis. Tax records are usually disbursed on January of the following year.

Compare several unit investment trusts arranged by major brokers with experience in the field. Investors are buying management expertise as much as they are buying a particular security. Issuers may issue bonds of higher or lesser quality and higher and lower yields for example. Understand your needs and buy accordingly.


  • Consider the expense ratio of the investment and its effect on your income. Compare all possible investment forms.