ExpertGlossary

A UIT may be a fixed portfolio of bonds with specific maturity dates, a portfolio of income-producing stocks, or a portfolio of all of the securities included in a particular index.

Examples of the latter include the DIAMONDs Trust (DIA), which mirrors the composition of the Dow Jones Industrial Average (DJIA), and Standard & Poor's Depositary Receipts (SPDR), which mirrors the Standard & Poor's 500-stock Index (S&P 500). Index UITs are also described as exchange traded funds (ETFs).

UITs resemble mutual funds in the sense that they offer the opportunity to diversify your portfolio without having to purchase a number of separate securities. You buy units, rather than shares, of the trust, usually through a broker.

However, UITs trade more like stocks than mutual funds in the sense that you sell in the secondary market rather than redeeming your holding by selling your units back to the issuing fund.

Further, the price of a UIT fluctuates constantly throughout the trading day, just as the price of an individual stock does, rather than being repriced only once a day, after the close of trading. As a result some UITs, though not index-based UITs such as DIAMONDS or SPDRs, trade at prices higher or lower than their net asset value (NAV).

One additional difference is that many UITs have maturity dates, when the trust expires, while mutual funds do not. A fund may be closed for other reasons, but not because of a predetermined expiration date.

When you buy stocks, bonds, options and commodities futures, it's typical to buy in a particular volume or a particular dollar value, called a round lot or a unit of trading.

For example, stocks are usually traded in lots of 100 shares, or multiples of 100 shares, and bonds in multiples of $1,000. For some preferred stocks, known as ten-share traders, the unit of trading is ten shares.

Any variation from the standard unit of trading is known as an odd lot.

The category of investment known as a mutual fund in the US is called a unit trust in other parts of the world.

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Universal life insurance is a type of permanent insurance that offers flexible premiums and a flexible death benefit.

Your tax-deferred cash value account accumulates at least the guaranteed rate of interest, but may accumulate at a higher rate if market rates are higher than the guaranteed rate.

You can use the money in your cash value account to pay premiums if there's enough available. And you can also increase the amount of the death benefit without having to qualify for the additional protection. This alternative allows you to build inflation protection into your insurance.

As with other permanent policies, you may be able to borrow against your cash value account, though any outstanding loan reduces your death benefit. You also get a portion of the cash value back, minus fees and expenses, if you end the policy.

However, universal life is a more complex product than straight life and the premiums are higher for a comparable death benefit.