Unit investment trust (UIT)
Also known as: UIT, unit trust
A unit investment trust (UIT) is an investment company that holds a fixed, unmanaged portfolio of securities and sells redeemable units to investors. The portfolio is assembled once and held until the trust terminates on a set date.
A unit investment trust is one of the three types of investment companies defined under the Investment Company Act of 1940, alongside face-amount certificate companies and management companies (mutual funds and closed-end funds). A UIT raises money from investors, buys a fixed portfolio of stocks or bonds, and then holds that portfolio largely unchanged until the trust's predetermined termination date.
The defining feature of a UIT is that it is supervised, not managed. There is no investment adviser actively trading the portfolio, no board of directors, and no ongoing management fee for security selection. Once the sponsor assembles the portfolio — say, a basket of 20 municipal bonds maturing around 2035 — it stays put. Investors buy "units" representing an undivided interest in the whole portfolio, and the trust passes through interest, dividends, and principal as they are received.
Units are redeemable securities: investors who want out sell their units back to the trust (or to the sponsor, which maintains a secondary market) at net asset value rather than trading them on an exchange. Because there is no active management, a UIT offers predictability and low ongoing costs, but it cannot adapt if a holding deteriorates.
UITs are a reliable exam topic. The SIE, Series 6, and Series 65 all expect you to know that UITs are unmanaged, issue redeemable units, have a set termination date, and charge no management fee — the classic contrast points against mutual funds and closed-end funds.
Key takeaways
- A UIT holds a fixed portfolio of securities that is assembled once and held until the trust terminates on a set date.
- UITs are supervised, not managed — there is no investment adviser, no board of directors, and no active trading.
- Investors buy redeemable units priced at net asset value, not exchange-traded shares.
- Because nothing is actively managed, UITs have low ongoing costs but cannot react to changing markets.
- Exams test UITs as one of the three investment company types under the Investment Company Act of 1940.