Tax Perspectives
From a tax perspective, UIT's offer a shelter from the unrealized capital gains taxes typical inside of a mutual fund. Because individual UIT's are assembled and purchased for specific periods of time, the cost basis consists of the initial purchase price of the securities held in the trust. A mutual fund on the other hand, taxes the individual based on the entire previous tax year regardless of the date purchased. An investor could, for example, purchase a mutual fund in October, absorb a loss during the last quarter of the year, and yet still be taxed on capital gains within the fund depending on the overall performance of the underlying securities from January 1 of the current year. A UIT avoids this potential tax consequence by assembling an entirely new "investment" for each individual investor.
Some exchange-traded funds (ETFs) are technically classified as UITs: however, ETFs usually do not have set portfolios (they are either managed or update automatically to follow an index), and can have lifetimes of over 100 years. For example, the SPDR S&P 500 Trust is scheduled to terminate January 21, 2118, and the PowerShares QQQ Trust is scheduled to terminate March 4, 2124.
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