Securities Industry Essentials (SIE) ExamUnderstanding Products and Their RisksMedium
Which of the following investment products is characterized by a fixed portfolio of securities, typically bonds, that are held until maturity, with no active management once the portfolio is established?
- AClosed-End Fund
- BUnit Investment Trust (UIT)
- CExchange Traded Fund (ETF)
- DOpen-End Mutual Fund
Show answer & explanationAnswer & explanation
Correct answer: B. Unit Investment Trust (UIT)
Unit Investment Trusts (UITs) are investment companies that offer a fixed portfolio of securities, usually bonds, which are held until the trust's termination date. Unlike mutual funds, UITs are unmanaged; the portfolio does not change.
Why the other options are wrong
- A. Closed-end funds are actively managed and trade on exchanges; their portfolio changes.
- C. ETFs are typically passively managed (tracking an index) but trade on exchanges and their portfolio can rebalance, not fixed until maturity.
- D. Open-end mutual funds are actively managed, with a fluctuating portfolio.
Unit Investment Trust (UIT)
An investment company that offers a fixed portfolio of professional selected securities, typically bonds, that are held until the trust's termination date.
- Fixed portfolio, generally unmanaged.
- Issued in redeemable units.
- Typically holds bonds until maturity.
- No active trading within the portfolio.
Memory trick: UITs: Unmanaged, Unchanging, Until Termination.