Fixed Portfolios & UITs — Q&A
Questions
Q1. What is the key difference between a UIT and a mutual fund?
Show answer
Management. UITs hold a fixed portfolio with no ongoing management after initial selection. Mutual funds are typically actively managed.
Q2. Are UITs redeemable securities?
Show answer
Yes. Investors buy and sell (redeem) directly with the issuer at NAV, similar to mutual funds. There is generally no secondary market.
Q3. Does a professional select the UIT portfolio at creation?
Show answer
Yes. A professional money manager selects investments to meet the objective, then the portfolio generally does not change. “Unmanaged” means no ongoing management, not that no one ever chose the holdings.
Q4. What are the main pro and con of the UIT structure?
Show answer
Pro: no ongoing management fees. Con: the portfolio cannot be adjusted to respond to changing market conditions.
Q5. How does a UIT investor liquidate their position?
Show answer
Request redemption from the issuer, who takes back the units and pays NAV — similar to mutual fund redemption.
Q6. Compare UIT and mutual fund on management fees and portfolio composition.
Show answer
UITs charge no management fees and hold a fixed portfolio. Mutual funds charge management fees and adjust holdings over time through the investment adviser.
Q7. In the three investment company types table, how do UITs differ from management companies on redeemability and pricing?
Show answer
UITs are redeemable at NAV with the issuer. Management companies: open-end funds redeem at NAV with the issuer; closed-end funds are negotiable and priced at market price (except interval funds).
Sources
| # | Source | Publisher |
|---|---|---|
| 1 | Achievable Series 65 — chapter 1.3.4 | Achievable (course text) |