FIN 420 - Notes - Lesson M1L4.docx - FIN 420 Notes Lesson M1L4 Unit Investment Trust(UIT This is created when a sponsor entity(perhaps a bank will

FIN 420 - Notes - Lesson M1L4.docx - FIN 420 Notes Lesson...

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FIN 420 - Notes - Lesson M1L4 Unit Investment Trust (UIT) . This is created when a sponsor entity (perhaps a bank) will purchase a pool of investments and form an account to hold them. They then sell shares in this pool until all “units” have been sold. The key characteristic of a UIT is that it has an expiration date and that the pool of invested assets does not change during its lifetime. The investment pool for a UIT is fixed for life! Open-end mutual fund (commonly called simple a "Mutual Fund") . Shares are issued or redeemed directly from the mutual fund company at the NAV price. The shares outstanding in a mutual fund will change as investors buy and sell shares. A unique feature of open-end mutual funds is that they may have a load applied to them. A “load” is a sales charge that the buyer of the fund will pay in order for the issuer to accept their deposit and sell them shares. Closed-end mutual fund (CE Fund) . A CE Fund is different from an open-end mutual fund in two key characteristics. First, there are a set number of shares issued in a closed-end fund. An investor who wants to purchase shares will need to buy them from another investor. The CE Fund’s sponsor does not issue more shares past the initial offering. Second, a CE Fund will commonly trade at a price different from its NAV. It may trade at either a discount (current price is less than the NAV) or a premium (current price is higher than the NAV). Investors use closed- end funds because they provide unique access to remote corners of the global markets that other investments do not.
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