Bond Mutual Funds vs Unit Investment Trusts

Both bond mutual funds and unit investment trusts can provide you with a way to invest in bonds and make a nice return on your investment. However, these two types of investments are very different and each have their own advantages and disadvantages. Here are a few things to consider about bond mutual funds and how they compare to unit investment trusts.

Bond Mutual Fund

With a bond mutual fund, investors are going to pool their money together and provide it to a fund manager. The fund manager is then going to use the money to purchase many different bonds. The bond fund manager is going to be in charge of choosing the bonds and deciding when to buy and sell them. When you own a share of the mutual fund, you are going to own a portion of all of the bonds that are in the fund.

Unit Investment Trusts

This is a type of investment that is offered as a fixed portion of a portfolio of bonds or stocks. With this type of investment, there is not going to be a fund manager and you are going to buy a fixed amount. In most cases, you will have to invest $1000 to get one unit.

Management

One of the biggest differences between these two types of investments is the level of management. With the mutual fund, you are going to get a high level of management. The fund manager is going to constantly review the portfolio and trade bonds. They are considered to be actively managed. With a unit investment trust, you are going to not have any management. The investment firm simply creates a portfolio of bonds and then sells units of it. They are not going to buy or sell any of the underlying securities while you are an owner of the unit. This means that your investment is going to be composed of the same securities for the duration. 

Expenses

Another key difference between these two types of investments is in how much it costs to get involved. With a mutual fund, you are going to have to pay annual operating expenses. These operating expenses cover things like the salary of the fund manager, distribution costs, and administration costs. Since there is a high level of management over the fund, you have to pay them for this extra management. With a unit investment trust, this is not going to be the case. They are simply going to set it up and then do nothing else. Therefore, you are not going to have to pay operating expenses like you do with a mutual fund. 

Time Limit

Another difference between these two types of investments is the time limit involved. With a bond mutual fund, there is no definite time limit. You could hold shares of the fund forever if the company stays in business. With a unit investment trust, there is a specific time limit. When the securities mature, the investment is going to be over.

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