About Unit Investment Trust (UIT) and How to Invest in It?

Unit Investment Trusts are potentially reliable investment vehicles for investors who want to invest in a fixed-security, fixed-period fund and get potential returns.

There are many investment avenues for people wanting to grow their wealth. In addition to the commonly explored stocks, bonds, and mutual funds, there exist alternative investments such as UITs, which may align well with specific investor preferences. You might want to explore investing in a UIT, or Unit Investment Trust, and here’s how this can be done. 

What is UIT?

A unit investment trust (UIT) is a US financial company which buys/holds securities like stocks or bonds, and makes them available to investors as redeemable units.

Investors can buy units of Unit Investment Trust and get exposure to a well-diversified collection of securities, like bonds or stocks, without any active management that is typical of Exchange-Traded Funds (ETFs) and mutual funds. The portfolio of a UIT has a fixed nature and comprises redeemable units invested for a particular duration.

A UIT is specifically built as a trust and may be known as a Unit Investment Trust Fund. UITs are designed to offer dividend income and/or capital appreciation. Due to the fixed structure of the trust, the portfolio of securities remains the same right through the tenure of the trust. 

How Investments Are Sold?

Now that the question about what a UIT is has been answered, you may want to find out how investments in a Unit Investment Trust are sold. UITs are sold to investors as units, with each of these units representative of a proportional interest in the fund’s portfolio.

The units are provided at the Net Asset Value (NAV), of the assets of the trust at the time when they are bought. Investors may buy units in a UIT via authorised intermediary entities, like financial advisors or brokerages. One fact that is important to note about a unit trust is that UITs come with a predetermined maturity date. Usually, securities cannot be sold till the maturity date is reached. 

Types of Unit Investment Trusts

The core qualities of a Unit Investment Trust are essentially the same as those of other types of trusts. UITs, on the other hand, can display a number of investing methods. In this sense, UITs may be classified into multiple types. The underlying assets purchased and held by various forms of UITs differ, resulting in varied investing strategies. Here are the different types of UIT investments available:

  • Income Fund: Such a Unit Investment Trust Fund aims to generate income through dividend payments to investors. Capital appreciation is not a priority here.
  • Strategy Fund: With a strategy portfolio, investors can beat the benchmark of the market, outperforming the markets in general. Such UIT makes the most of fundamental analysis to decide the investments that may be market beaters.
  • Sector-Specific Fund: UITs that concentrate on niche markets are sector-specific and may pose a high risk. Nonetheless, if they prove worthy, they tend to generate great returns too. 
  • Diversification Fund: A unit trust which is on most investors’ minds offers diversification. In this kind of UIT, assets are diversified across a range of investments. This mitigates risk.
  • Tax-Focused Fund: In case you want an investment in a UIT that saves on taxation, then these funds help you achieve this. Among UIT investments, these may be quite popular.

UITs vs Mutual Funds

Mutual funds and UITs differ in significant ways due to how they are structured and operated. The foremost difference is in terms of the kind of funds they represent. Mutual funds are essentially open-ended funds. They are managed by fund managers who may manipulate the portfolio by purchasing and selling securities to retain the positive performance of the fund. So mutual funds are funds that have active management at their core, while UITs are not managed by anyone. UITs, on the other hand, have a fixed and unchanging portfolio relying on income payments from securities invested in the funds until the fund reaches a maturity date. 

Read more about What is Open-ended Funds

Another area of difference between a Unit Investment Trust and a mutual fund is that mutual funds hold stocks that may be traded. Contrastingly, a UIT has a particular limit beyond which the number of shares available cannot be split or merged. 

Advantages and Disadvantages of a Unit Investment Trust Fund

UIT investments bring substantial advantages, but there are some pitfalls too. These are outlined below:


Among the pros of UITs is their ability to give investors a diversified portfolio. This helps to mitigate the risk posed by different securities and their potential underperformance. Another perk of investment in a Unit Investment Trust is that the whole investing process is transparent in terms of holdings and the strategies for investment. Finally, as UITs are a passive type of investment, they may not incur hefty charges relative to funds actively managed. You also should remember that UITs are considered tax-efficient investments that are accessible to a huge range of investors due to their low minimal investment needs. To summarise, UITs offer these benefits:

  • Diversification in a portfolio
  • Definite Objectives 
  • Low Fees


Among the cons of UITs, you may find the number small, but they are present. A unit trust has a rigid security portfolio and a predetermined strategy for investment. This makes UITs inflexible as far as investors are concerned. Investors have limited or no control over portfolios. A Unit Investment Trust Fund may retain underperformers in the portfolio, and strategies stay the same. Added to this restriction is the fact that a UIT invests in a particular asset class/sector. Essentially, this translates to UITs being unable to offer as much diversification as other open-ended funds. To summarise, investors should look out for the following risks:

  • Pre-set portfolio 
  • Absence of active operations and management 

UITs and Taxation

A Unit Investment Trust is structured as a pass-through entity for taxation. Any gains and income are passed on to investors within the trust. Consequently, investors are accountable for any tax payments on earnings in the fund. 

The treatment of tax regarding a UIT varies according to security types held by the trust as well as the investor’s tax circumstance. For instance, if the trust holds any stocks or other securities paying dividends, dividends are passed through to the investor and they are taxed as an investor’s ordinary income. In case the trust makes a profit on securities held, the capital gains are passed on to investors.

A possible tax benefit you get through a unit trust is that because it is a passive investment, securities are purchased and sold less often. Since turnover is low, they are prone to generate lower capital gains. This may lead to tax efficiency.

UIT Costs

Any Unit Investment Trust comes with related costs like a sales charge or load. This is usually a percentage of the amount invested. Then there is a management fee which covers administrative costs. There is also a trustee fee that a unit trust charges and this is for the trustee overseeing the UIT. 

Final Words

Once you know the answer to the question, “What is a UIT?”, you may be well-equipped to decide if you wish to invest. A UIT has some similarities to a mutual fund, except that it is not as actively managed or as flexible as a mutual fund. Whether you opt for this investment vehicle or not depends entirely on your investment style, financial goals, and personal preferences. After you decide on your requirements and plans, you can go to Angel One and make your investments by opening a Demat account first. 


What is a UIT?

Unit Investment Trust (UIT) is a sort of pooled investment channel with a set portfolio and predetermined maturity date.

Can I invest in a UIT in India?

UITs are US-based investments. They are not available in India.

Can I redeem my UIT units before the maturity date?

There are a few UITs that possibly offer early redemption plans, but these may be subject to some terms.

What are the tax implications of UIT investment?

UITs pass the liability of taxation to investors and taxation works according to the kind of income.

Are UITs good for long-term investment?

UITs may be appropriate for investors with particular investment horizons and risk appetites. Before you invest, it is worth considering your financial plans and goals.