Quick Answer
A UIT holds a fixed, unmanaged portfolio assembled at creation, runs under a trustee instead of a board of directors, and has a stated termination date. It has no management fee because no adviser makes ongoing buy or sell decisions.
UITs are the third statutory investment company type under the ICA, but nearly everything about how they operate is the opposite of an actively managed mutual fund.
What Are the Key Characteristics of a UIT?
- Fixed portfolio of securities assembled at creation (bonds or stocks)
- Not actively managed: no investment adviser making ongoing buy/sell decisions
- Supervised by a trustee (not a board of directors)
- Have a stated termination date (especially bond UITs)
- Issue redeemable units (units of beneficial interest): investors can redeem with the trust
- Once a security matures or is sold, proceeds are distributed (not reinvested)
- No management fee (has creation/sales charge and trustee fee)
- Income passes through to unit holders
- Must register under the ICA
Exam Tip: Gotchas
- UITs are NOT actively managed. If a question describes a pooled investment with a fixed portfolio and a termination date, it is a UIT. The lack of a management fee (no ongoing advisory fee) is a key distinguishing factor.
How Does a UIT Compare to a Mutual Fund?
| Feature | Mutual Fund (Open-End) | UIT |
|---|---|---|
| Management | Actively managed by adviser | Fixed, unmanaged portfolio |
| Portfolio changes | Securities bought/sold continuously | No changes (buy-and-hold) |
| Oversight | Board of directors | Trustee |
| Termination | No set end date | Stated termination date |
| Fees | Management fee + expenses | No management fee; creation charge + trustee fee |
Think of it this way: A UIT is like buying a pre-made basket of bonds (or stocks) and holding them until maturity. The portfolio is locked in at creation. Unlike a mutual fund, no adviser is making ongoing decisions about what to buy or sell.
Exam Tip: Gotchas
- UITs are NOT mutual funds. Different legal structure, have a termination date, and have no board of directors (trustees instead).
What Should You Check on Exam Day?
- Can you name all three ICA statutory types and identify a UIT by its fixed, unmanaged portfolio and stated termination date?
- Do you know why a UIT has no management fee, and what fees it does charge instead?
- Can you explain what happens to proceeds when a security in the trust matures or is sold (distributed, not reinvested)?
- Do you know who supervises a UIT (a trustee) instead of who oversees a mutual fund (a board of directors)?