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Mutual Funds vs Unit Investment Trusts: What's the Difference?

When it comes to investing in the stock market, there are many different ways to do it. Two of the most popular methods are through mutual funds and unit investment trusts (UITs). Both have their pros and cons, so it's important to understand the difference before deciding which is right for you.

What is a Mutual Fund?

A mutual fund is an investment vehicle that is made up of a pool of funds from different investors. The money is then used to buy a variety of different securities, such as stocks, bonds, and other assets. Each mutual fund has a specific investment objective, which dictates what types of securities it can purchase.

The main advantage of mutual funds is that they offer diversification. By investing in a variety of different securities, you can mitigate the risk of losing money if one particular security performs poorly. Mutual funds are also relatively easy to invest in and can be purchased through most brokerages.

What is a Unit Investment Trust?

A unit investment trust (UIT) is a type of investment that is similar to a mutual fund in that it is made up of a pool of funds from different investors. However, unlike mutual funds, UITs are not actively managed. This means that the securities in a UIT are bought and held for a set period of time, typically between 3 and 10 years.

The main advantage of UITs is that they offer a fixed rate of return. This is because the securities in a UIT are not actively traded, so there is no risk of losing money if the market fluctuates. UITs are also relatively easy to invest in and can be purchased through most brokerages.

Which is better?

There is no clear answer as to which is better, mutual funds or UITs. It depends on your individual investment objectives and risk tolerance. If you are looking for a long-term investment with a fixed rate of return, then a UIT may be a better option. However, if you are looking for a more actively managed investment with the potential for higher returns, then a mutual fund may be a better option.

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