Utf's and Etf's

QUESTION: What are Unit Trust Funds and Exchange-Traded Funds (ETF)? How they are different from Open-ended and Closed-ended mutual funds?

ANSWER:

UNIT TRUST FUNDS:

A fund, in the form of an investment company, in which shareholders combine their money to invest in a variety of stocks, bonds, and money-market investments such as U.S. Treasury bills and bank certificates of deposit. A unit trust is a form of collective investment constituted under a trust deed. Unit trusts are open-ended investments; therefore the underlying value of the assets is always directly represented by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. Each fund has a specified investment objective to determine the management aims and limitations.

The major difference between a Unit Trust and a mutual fund is that a mutual fund is actively managed, while a unit investment trust is not managed at all. Capital gains, interest and dividend payments from the trust are passed on to shareholders at regular periods. If the trust is one that invests only in tax-free securities, then the income from the trust is also tax-free. A unit investment trust is generally considered a low-risk, low-return investment. Some investors prefer Unit Trusts to mutual funds because Unit Trusts typically incur lower annual operating expenses (since they are not buying and selling shares); however, Unit Trusts often have sales charges and entrance/exit fees. Also called fixed investment trust or participating trust or Unit Investment Trust. Mutual funds can be open ended or close ended. But unit trusts are open ended instruments.

EXCHANGE TRADED FUNDS:

Exchange-Traded Fund (ETF), is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold. ETFs represent shares of ownership of a...