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Meaning / Definition of

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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Definition / Meaning of

Tax Exempt

Categories: Finance,

Some investments are tax exempt, which means you don't have to pay income tax on the earnings they produce.For example, the interest you receive on a municipal bond is generally exempt from federal income tax, and also exempt from state and local income tax if you live in the state where the bond was issued. However, if you sell the bond before maturity, any capital gain is taxable.Similarly, dividends on bond mutual funds that invest in municipal bonds are exempt from federal income tax. And for residents of the issuing state for single-state funds, the dividends are also exempt from state and local taxes. capital gains on these funds are never tax exempt.Earnings in a roth ira are tax exempt when you withdraw them, provided your account has been open for five years or more and you're at least 59 1/2 years old. And earnings in 529 college savings plans and coverdell education savings accounts (ESAs) are also tax exempt if the money is used to pay qualified education expenses.When an organization such as a religious, educational, or charitable institution, or other not-for-profit group, is tax-exempt, it does not owe tax of any kind to federal, state, and local governments. In addition, you can take an income tax deduction for gifts you make to such organizations.

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