How To Switch To A Unitholder Trust | Finance

How To Switch To A Unitholder Trust | Finances – Zacks

By: Tim Plaehn

To buy into an open-ended investment trust, you must work with a licensed investment advisor.

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Since mutual funds are almost exclusively sold by investment advisers, the ITU you own was recommended based on what you told the advisor. If your investment goals have changed, or you are just simply not happy with ITU, the nature of these investment products makes it easy to transfer your money to another investment.

Fixed portfolio investment

Mutual funds are a form of investment company incorporated and governed by the same rules as mutual funds and exchange traded funds. With an UIT, you buy into a professionally selected portfolio that won’t change, and the trust has a termination date on which the securities will be sold and the proceeds distributed to investors. There are stock and bond UITs, with trusts holding non-taxable bonds making up the bulk of the UIT universe.

Wait for the termination date

Depending on how long the ITU you own, one option is to wait until the trust ends and then reinvest the proceeds in cash. ITU terms range from one year to over 20 years. For bondholder trusts, the duration of the bond in the ITU is selected to match the duration of the trust. In the case of an ITU bond, you can expect that if the present value has fallen, it will reset on the termination date when the bonds mature at face value.

Sponsors provide a market

If you must sell ITU shares prior to termination, the financial services company that set up the trust will maintain a market for investors who wish to sell their shares. Units offered for sale are purchased at the current net asset value calculated by the Limited Partnership. The NAV works the same way as the calculated stock price for mutual funds. To sell your ITU shares, you should contact the financial advisor who originally sold ITU to you. You will have the money in a few days and then can invest the product where you want.

Switching between ITUs

When an ITU ends, you can often transfer the proceeds to a new trust with a reduced commission rate. If you want to change ITU and are near the termination date, it may be a good idea to wait for your current ITU to pay and transfer the money to a new trust from the same sponsor. You may also benefit from a break if you sell an UIT early and want to invest in another mutual fund. To see if this is possible, talk to your investment advisor and ask them to research what types of offers are available to switch from one ITU to another.


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