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?
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: