UITs and Mutual Funds

C

A Unit Investment Trust (UIT) is an investment company that pools money from investors to purchase a fixed portfolio of securities. UITs are designed to provide investors with a convenient way to invest in a diversified portfolio of securities with a predetermined investment objective.

One of the key features of a UIT is that it issues redeemable securities, or "units." This means that investors can buy units in the UIT, and the UIT will buy back those units at the investor's request, at their approximate net asset value (NAV). The NAV is calculated by subtracting the value of the UIT's liabilities from the value of its assets, and then dividing that figure by the number of units outstanding.

The redeemable nature of UIT units is similar to the shares of a mutual fund, in that investors can buy and sell units as needed. However, unlike mutual funds, UITs typically make a one-time "public offering" of units, meaning that once the offering period is over, the UIT will not issue any additional units. This is in contrast to mutual funds, which are generally open-ended and can issue new shares at any time.

Additionally, unlike actively managed mutual funds, a UIT typically does not actively trade its investment portfolio. Instead, the UIT purchases a fixed portfolio of securities at the outset, and holds those securities until maturity or until they are sold.

Therefore, the correct answer to the question is option C: "That the UIT will buy back an investor's request at their approximate net asset value." Option A is incorrect because UITs can issue additional units in subsequent offerings, but they are not continuously open-ended like mutual funds. Option B is incorrect because while a UIT does not actively trade its portfolio, it may still engage in some limited trading activity. Option D is incorrect because only option C accurately describes the characteristic of UITs related to the question.