You’ve probably already heard about stocks, bonds, and mutual funds. But, something that you might not have heard of yet are Unit Investment Trust Funds, or UITFs.
Let’s dive into what exactly UITFs are, and why we should invest in them!
What is a UITF?
A UITF is a type of investment fund managed by a professional fund manager. UITFs are pooled funds, much like Mutual Funds. This means that the money of investors is pooled together and invested in a variety of assets, such as stocks, bonds, and money market instruments. This diversification helps to reduce risk, as the performance of the fund is not dependent on the performance of any single asset.
UITFs are also open-ended funds. This means that new units can be created and redeemed at any time. This makes them very liquid since investors can get in and out easily. On top of that, they are also very affordable due to the usually low minimum investment amount required.
Types of UITFs
Much like Mutual Funds, there are many types of UITFs available. Investors can choose the UITF suitable for them depending on their needs and risk tolerance.
Money market funds: These are invested in short-term, low-risk assets, such as treasury bills and commercial paper. Money market funds are typically good for people with a low-risk tolerance.
Bond funds: These UITFs invest in bonds, which are loans that are made to companies or governments. They offer higher potential returns than money market funds, but they also carry more risk.
Equity funds: These funds invest in stocks, which represent ownership in a company. They offer the potential for high returns, but they also carry the most risk.
How do UITFs work?
When you invest in a UITF, you are essentially buying shares or units of participation in the fund. The number of units you buy will depend on the amount of money you invest. The fund manager will then invest your money in the assets that are specified in the fund’s prospectus. From there, the value of your units in the UITF will depend on the performance of the all the investments as a whole.
What are the benefits of investing in UITFs?
Among many things, UITFs hold the benefit of being a passive form of investing. UITFs are typically diversified funds that are managed by professionals. This ensures that your money will grow in the long term. It’s also worth noting that UITFs are usually liquid – meaning it’s easy for you to pull out your money as well while benefitting from typically low fees.
Of course, like with any investment, UITFs are subject to the volatility of the markets. While you can expect to earn in the long term, these funds are typically volatile in the short-term. Another factor that could accentuate risks is choosing the wrong management company. To make sure your investment is safe, make sure to check first what the track record of the investing company looks like.
Should you invest in UITFs?
UITFs are a solid option for investors who want someone else to manage their money. They are diversified, professionally managed, and liquid investments. Although they usually aren’t cut out as the main allocation for most portfolios, these funds can be a great addition as a way to diversify your investments.
Make sure to check out Investa to explore the different UITFs you can invest in!
