How to Switch in a Unit Investment Trust

Since unit investment trusts are almost exclusively sold by investment advisers, the UIT you own was recommended based on what you told the adviser. If your investment goals have changed or you just are not happy with the UIT, the nature of these investment products makes it pretty easy to switch your money to another investment.

Fixed Portfolio Investment

Unit investment trusts are a form of investment company formed and governed under the same rules as mutual funds and exchange-trade funds. With a UIT, you are buying into a professionally selected portfolio that will not change, and the trust has a termination date when the securities will be sold and the proceeds distributed to investors. There are stock and bond UITs, with trusts holding tax-free bonds making up the largest portion of the UIT universe.

Wait for Termination Date

Depending on the term of the UIT you own, one option is to wait for the trust to terminate and then reinvest the cash proceeds. UIT terms range from as short as one year to longer than 20 years. For bond-owning trusts, the term of the bonds in the UIT are selected to match the term of the trust. In the case of a bond UIT, you can expect that if the current value has dropped, it will recover by the termination date when the bonds are maturing to their face values.

Sponsors Provide a Market

If you need to sell UIT shares before termination, the financial services company that put together the trust will maintain a market for investors who want to sell their units. Units tendered for sale are purchased at the current net asset value calculated by the sponsor company. Net asset value works the same as the share price calculated for mutual funds. To sell your UIT units, you need to contact the financial adviser who initially sold you the UIT. You will have the money in a couple of days and can then invest the proceeds wherever you want.

Switching Between UITs

When a UIT terminates, you can often roll the proceeds to a new trust with a reduced commission rate. If you want to switch UITs and you are close to the termination date, it may make sense to wait until your current UIT pays out and roll the money to a new trust from the same sponsor. You may also get a break if you sell out of a UIT early and want to invest in a different unit trust. To see if this is possible, talk to your investment adviser and have him research what types of offers are available to change from one UIT to another.