alleryStart learning →Which feature marks out a unit investment trust?
AIt trades its portfolio actively to beat an index
BIt issues new units continuously at the daily NAV
CIt terminates and dissolves on a date set in advance
DIt is redeemable only by Authorized Participants
Answer & Solution
Correct answer: C. It terminates and dissolves on a date set in advance
1. A unit investment trust makes a one-time public offering of a fixed number of redeemable units.
2. Its defining feature is a finite life: it terminates and dissolves on a date fixed when it is created.
3. Unit investment trusts do not actively trade their investment portfolios, which rules out the active trading option.
4. Continuous issuance at NAV describes an open-end fund instead.
5. Redemption limited to Authorized Participants describes the ETF creation and redemption mechanism.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Glossary of Key Mutual Fund and ETF Terms_
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