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Unit Investment Trust (UIT)
Categories: Finance,
A UIT may be a fixed portfolio of bonds with specific maturity dates, a portfolio of income-producing stocks, or a portfolio of all of the securities included in a particular index. Examples of the latter include the DIAMONDs Trust (DIA), which mirrors the composition of the dow jones industrial average (DJIA), and Standard & Poor's depositary receipts (SPDR), which mirrors the Standard & Poor's 500-stock index (s&p 500). Index UITs are also described as exchange traded funds (ETFs).UITs resemble mutual funds in the sense that they offer the opportunity to diversify your portfolio without having to purchase a number of separate securities. You buy units, rather than shares, of the trust, usually through a broker. However, UITs trade more like stocks than mutual funds in the sense that you sell in the secondary market rather than redeeming your holding by selling your units back to the issuing fund. Further, the price of a UIT fluctuates constantly throughout the trading day, just as the price of an individual stock does, rather than being repriced only once a day, after the close of trading. As a result some UITs, though not index-based UITs such as DIAMONDS or SPDRs, trade at prices higher or lower than their net asset value (NAV). One additional difference is that many UITs have maturity dates, when the trust expires, while mutual funds do not. A fund may be closed for other reasons, but not because of a predetermined expiration date.
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Inflation-protected Security (TIPS)
Categories: Finance,
us treasury inflation-protected securities (TIPS) adust the principal twice a year to reflect inflation or deflation measured by the consumer price index (CPI). The interest rate is fixed and is paid twice a year on the adjusted principal. So if your principal is larger because of inflation you earn more interest. If it's lower because of deflation, you earn less.You can buy TIPS with terms of 5, 10, or 20 year at issue using a TreasuryDirect account or in the secondary market. At maturity you receive either the adjusted principal or par value, whichever is greater. You owe federal income tax on the interest you earn and on inflation adjustments in each year they're added even though you don't receive the increases until the security matures. However, TIPS earnings are exempt from state and local income taxes.These securities provide a safeguard against deflation as well as against inflation since they guarantee that you'll get back no less than par, or face value, at maturity.
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