What Are The Benefits Of Unit Investment Trusts?

That main benefit is that the diversification of the stock's portfolio minimizes the risk of the investment. Even more, the unit may be insured. You will have to check the last issue with the UIT with whom you wish to work.



What about the initial investment? Well, if you want to buy a unit you don't need huge amounts of capital. You only require between US$ 1,000 and US$ 5,000, depending on the UIT. This amount of money is easily achievable in the USA.

In case you required the money for an emergency, you can sell your unit quickly since this kind of security has a high liquidity. You may sell it in the secondary market at its liquidation price.

What about the Risks?

Unfortunately there are some. The first is the lack of management. Although in the process of selecting the securities follow an extensive research, nothing is done afterwards. This reduces the costs of the unit investment trust service, but it may be unattractive to a possible investor.

Another disadvantage is the sensibility of the UIT to interest rates. If the interest rate rises, then the prices of the bonds that are part of the UIT will fall, even when the bond hasn't had any fluctuation.

Additionally, if any of the bonds of the unit are called, then the corresponding amount will be paid to the unit holder, compromising the stability of the unit.

Finally, it may happen that the Sponsor will not want to buy back an unit from the investors. Although it's rare, it should be considered when using this kind of security.

Does it still sound too risky for you? Maybe you should apply for a municipal bond unit investment trust. They have a lower risk than corporate unit investment trusts but maintain all the benefits of this financial instrument. As you can see there is an enormous variety of options in a unit investment trust. That's it's why you should attend a broker for guidance, especially if its your experience with it.