Question:
My husband and I are going through his father’s investments. He has several unit investment trusts. What are these, and what should we do with them?
Answer:
Unit investment trusts are like mutual funds in that they buy securities and sell units of investment to investors. Unlike mutual funds, unit investment trusts only buy securities when they are first created. Mutual fund portfolio managers consistently trade the underlying assets as money flows in and out of the fund. In a unit investment trust, a specified number of securities are purchased and held for a specified period of time, usually less than five years.
Unit investment trusts are unmanaged, created by investment companies and sold by brokers, which may be a benefit as tax gains from asset sales are not created as with mutual funds. Mutual funds generally adhere to a specific investment strategy, but unit investment trust may not. The market value of the trust fluctuates with the value of the underlying securities, but shares of the trust can be sold at the net asset value of the underlying securities or at a premium or discount.
Unit investment trusts generally have a maturity period, and pay out income monthly, quarterly or semiannually. Because of this, they are known for providing a consistent income stream. If the unit investment trust is held through its termination date, a unitholder may also receive a share of the principal when the trust is liquidated.
While the unit investment trust incurs no trading fees, you have to consider the up-front fees, or load, and annual fees charged by the trust. You can generally find more information on your specific investments on Yahoo Finance or Morningstar.com.
In summary, you should review the underlying holdings and liquidation date to determine if you want to hold or sell the unit investment trust. You should also take into consideration the tax consequences and any remaining deferred sales charges.
If you have questions regarding your investment holdings the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
