5 Reasons to Consider a Bond Unit Investment Trust

A bond unit investment trust is a type of investment vehicle in which bonds are chosen for a portfolio, and then shares of the portfolio are sold to investors. Unlike a bond mutual fund, the holdings of the trust never change. The unit investment trust creates the portfolio, sells shares of it to investors, and then leaves the portfolio alone. These bond unit investment trusts could focus on a number of different types of bonds including municipal, government, investment grade and junk bonds. Here are a few reasons to consider a bond unit investment trust.

1. Regular Income

One of the biggest benefits of investing in this type of investment is that you can secure a regular income. With a portfolio of bonds, they will generate coupon payments every month. These coupon payments will be collected and distributed to the investors of the trust. This can be a great investment for those that are in retirement or just want a regular source of income. If you buy into enough bond unit investment trusts, you could generate a substantial passive income.

2. Safety

Another benefit of investing in a bond unit investment trust is safety. This is considered to be one of the safest investments available in the market. Individual corporate bonds are traditionally considered to be very safe as long as they are of investment grade. When you combine a portfolio of multiple bonds, you also increase the safety of the investment because even if one company defaults, you still have all of the other bonds. 

3. Low Costs

When you invest in a bond unit investment trust, you will also be able to benefit from low investment costs. This type of investment does not require ongoing management from a fund manager in the same way as a mutual fund would. The unit bond investment trust is set up at the beginning of the term with all of the bonds for that trust. They never have to worry about selecting other bonds to invest in or worry about when to sell the bonds in the portfolio. Since they have very little to do with the portfolio after it is initially created, you do not have to pay ongoing expense ratios and other costs that come with mutual funds.

4. Definite Time

The unit investment trust is a type of investment vehicle that has a definite amount of time for its existence. When the bonds mature, the unit investment trust will be over. This eliminates a lot of the confusion that comes with investing for many people. Many people do not know when to sell or get out of an investment. With the unit investment trust, you can get rid of the guesswork and just collect all of your coupon payments every month.

5. Tax Benefits

In some cases, you can also realize tax benefits by investing in this type of trust. Some bond unit investment trusts are set up with municipal bonds in them. This means that you can get income from the bonds that is not taxable on a federal or state level. This increases the amount of money that you get to keep and makes the investment that much more attractive.

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