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Are Unit Investment Trusts (UITs) a Good Investment?

To determine whether UITs are good investments, it may be wise to pay heed to a financial services veteran who reveals that

“the financial services industry is littered with products and services that do little for the individual investor but benefit companies and commission-driven brokers by lining their pockets.”

A close look at UITs will help determine whether the product generally qualifies as “a good investment.”

What is a UIT [Unit Investment Trust]?

A UIT is a fixed, unmanaged portfolio set to mature in one or two years. They are similar to mutual funds; however, there are some notable differences!

UITs v. Mutual Funds

A mutual fund has a sales charge, but most mutual funds have classes of shares that provide volume discounts or fees that are a fraction of the cost of UITs, which roll over and provide a new sales opportunity for the broker every year or two. Also, since the UIT portfolio is fixed, the investor is unable to make changes to remove poor performing shares or sectors as one would be able to do with sector mutual funds.

UITs have High Costs

UITs also have high transaction costs. These costs range from 3% to 5% and there may be additional annual expenses. Contrast this with mutual funds that are managed by a fund manager, and most mutual fund costs range from less than 1% to 2% of the assets.

Liquidity Issues

If you want your cash out of a UIT before the portfolio matures, be prepared to take an even greater hit on your investment. Because there often is no liquid market for early terminated UIT shares, it can be difficult or impossible to liquidate these unit trusts prior to maturity. Contrast that to the markets for ETFs or mutual funds, which can be sold either during the trading day or at the close of every business day.

So, the determination is that while there are many reasons to avoid investing in UITs, there are very few reasons to advocate their purchase as well.

If you believe you have suffered losses in your portfolio as a result of investing in UITs that your financial advisor recommended, you may be able to recover your losses through securities arbitration or litigation.

Please contact the Law Offices of Howard M. Rosenfield
toll-free at 1-(800)-637-3243
for a free, no obligation consultation
to discuss your loss recovery options.

The Law Office of Howard Rosenfield represents investors in arbitration and litigation matters.

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