how investments are sold
investors can redeem mutual fund shares or uit units at net asset value nav to the fund or trust either directly or with the help of an investment advisor nav is defined as the total value of the portfolio divided by the number of shares or units outstanding and the nav is calculated each business day on the other hand closed end funds are not redeemable and are sold in the secondary market at the current market price the market price of a closed end fund is based on investor demand and not as a calculation of net asset value uits often have a set maturity date between 12 to 24 months during this time period securities usually can not be sold types of unit investment truststhough the underlying characteristics of a uit are often the same across different types of trusts there are different strategies for uits these different types will vary in the underlying assets that are purchased and held as each of the following uits will have a different investment strategy unit invest trusts vs mutual fundsmutual funds are open ended funds meaning that the portfolio manager can buy and sell securities in the portfolio meanwhile a uit pays interest income on the bonds and holds the portfolio until a specific end date when the bonds are sold and the principal amount is returned to the owners investors may prefer uits if they re looking for investments with clearly defined start and stop schedules a uit may also be rolled into other another uit if it is part of a series many investors prefer to use mutual funds for stock investing so that the portfolio can be traded if an investor is interested in buying and holding a portfolio of bonds and earning interest that individual may purchase a uit or closed end fund with a fixed portfolio the uit will have a specified limit on the number of available shares that cannot be merged or split the investment objective of each mutual fund is to outperform a particular benchmark and the portfolio manager trades securities to meet that objective a stock mutual fund for example may have an objective to outperform the standard poor s 500 index of large cap stocks meanwhile uits are not actively managed assets are purchased upfront then those assets are held for the duration of the uit in rare cases trust sponsors may be allowed to exchange the trust assets there are stock and bond uits but bond uits are typically more popular than their stock counterparts as they offer predictable income and are less likely to suffer losses advantages and disadvantages of uitsunit investment trusts uits have several specific investment advantages uits provide investors with access to a diversified portfolio of securities this can help to reduce the risk of losses due to any single security s underperformance be mindful that some uits are industry specific i e 100 invested in healthcare and these uits do hold greater risk uits are required to disclose their portfolios regularly providing investors with greater transparency into their holdings and investment strategy in addition uits are generally passive investments this means they do not involve active management or frequent trading this can result in lower fees and expenses compared to actively managed funds uits are also typically structured as pass through entities which means they do not pay taxes at the trust level this can result in greater tax efficiency uits often have low minimum investment requirements making them accessible to a wider range of investors in addition more investors may appreciate the simplicity of a uit uits have a fixed portfolio of securities and a set investment strategy this means their performance is usually more predictable than actively managed funds that may change their holdings and investment strategy over time uits unfortunately have a number of downsides as well because uits have a fixed portfolio of securities and a set investment strategy investors have little control over the investments made by the trust in some cases poor performers are also retained and sponsors usually maintain uit assets without trading away or changing strategy as mentioned before while uits do provide some diversification they typically invest in a specific market sector or asset class this means they may not provide the same level of diversification as more broadly diversified investments uits are designed to be long term investments so they may not be appropriate for investors who need access to their funds on short notice uits are also not traded on exchanges like mutual funds and may incur fees upfront so investors may have difficulty buying or selling units or must be prepared to incur higher costs when purchasing the investment in some cases uits may not provide as much information about their investment strategy or performance as other types of investments this includes not having as much transparency around fees expenses or future plans for changes in assets may promote diversification depending on assets selectedmay be transparent as there are specific reporting requirementsmay incur less fees due to passive managementmay be more predictable as there is often a set investment strategymay be tax efficient depending on the uit strategymay be less flexible as the uit strategy is usually not changedmay be less diversified if invested in a single industry or asset classmay front loan feesmay be intended for long term holding periods with limited liquiditymay have limited information about fees expenses or future strategyuits and taxationuits are generally structured as pass through entities for tax purposes this means uits often don t pay taxes at the trust level instead income gains and losses are passed through to the investors in the trust as a result investors are responsible for paying taxes on their share of the trust s income gains and losses and the trust is tax exempt the tax treatment of a uit can vary depending on the types of securities held by the trust and the investor s individual tax situation for example if the trust holds stocks or other securities that pay dividends the dividends will be passed through to the investor and taxed as ordinary income similarly if the trust sells securities for a profit all capital gains are passed through to the investor one potential tax advantage of uits is that they are generally structured as a passive investment this means that because investments are bought and sold less frequently they may have lower turnover and generate fewer capital gains than actively managed funds this can result in greater tax efficiency for investors looking to minimize their capital gains taxes uit costslike other forms of investing uits carry with them a variety of costs some uits charge a sales charge called a load this sales charge is typically a percentage of the investment amount and can range from 1 to 5 or more uits typically charge a management fee which is a percentage of the assets held in the trust the management fee covers the costs of managing the portfolio and other administrative expenses though these fees may be less than actively managed investments uits also charge trustee fees these trustee fees cover the costs of the trustee responsible for overseeing the trust trustee fees are typically a fixed amount or a percentage of the assets held in the trust though there may be other expenses included specific for legal accounting custody or administration fees real world exampleguggenheim s global 100 dividend strategy portfolio series 14 cgonnx was founded on march 15 2018 with the intent to provide dividend income it contained 100 diversified positions 45 16 invested in large cap stocks 26 94 in mid caps and 27 90 in small caps 1 roughly half of the securities are invested in u s stocks with the balance invested in many other countries allocation reflects many sectors as well each company it holds represents roughly 1 of the portfolio this uit was created with a mandatory maturity date of june 17 2019 since the maturity date of this uit guggenheim has continually offered new uit offerings for example the global 100 dividend strategy portfolio series 24 was created on sept 9 2020 with a mandatory maturity date of dec 17 2021 2