A unit investment trust (UIT) is a registered investment company under the Investment Company Act of 1940 that holds a fixed, unmanaged portfolio of securities — bonds, stocks, or both — assembled at inception and generally held until the trust terminates. UITs issue redeemable units (not shares) to investors, and the units can be redeemed with the trust at NAV. Unlike mutual funds, UITs have no ongoing management — once the portfolio is set, securities are not actively bought or sold.
UITs have a defined life span: the trust terminates on a predetermined date (or when all securities mature for bond UITs), at which point the proceeds are distributed to unit holders. Bond UITs (the most common type) assemble a portfolio of bonds — often municipal or corporate — with the goal of providing regular income and return of principal at termination. Equity UITs (such as the original SPDR S&P 500 ETF, which is technically structured as a UIT) hold a fixed basket of stocks.
Sales charges on UITs are front-end loads, similar to Class A mutual fund shares. Because the portfolio is fixed, expense ratios are generally lower than actively managed funds. However, there is no flexibility to adapt to changing market conditions.
UITs do not have a board of directors or investment adviser making ongoing portfolio decisions — this distinguishes them from open-end funds and closed-end funds.
> Exam tip: On the SIE and Series 6/7, distinguish UITs from mutual funds (no ongoing management, fixed portfolio, defined life) and from closed-end funds (UITs redeem at NAV; closed-end shares trade on exchanges). Know that UITs are registered investment companies but have no board of directors and no ongoing management discretion.