How do you earn from a UITF?
POSTED ON August 12, 2019
Think of a Unit Investment Trust Fund (UITF) as a car, with the assets making up the engine. Some cars are designed for comfort but are heavy and slow. Others are made for performance. There are even crossovers with the qualities of both.
Similarly, some UITFs are designed to grow constantly but slowly, while others are meant to grow by a large amount in the long term. Some UITFs are in between these two.
Earning with UITFs
Every time you put money in a UITF, you get units, which represent how much of a total fund you own.
The value of a UITF moves up and down, and the value of each unit called Net Asset Value Per Unit (NAVPU) moves with it.
If the units are worth more than your original investment, you’ve gained. And when you’re happy with your gains, you can give the units back to the bank for their value at the time. (See: Here's how you can tell if you've made money from your UITF).
UITFs going up
Now, imagine a UITF as a car going up a mountain.
You start at the bottom and must follow the road to get to a higher elevation. Although there are several roads you can pass, all with varying heights, only your destination matters. That is the highest point on the mountain.
The goal is to “hit the gas” when you’re at a high point, or in the case of a UITF, cash in your units when the NAVPU is at a trajectory or a higher plane.
Exceptions to the rule
Certain UITFs, however, behave differently. For example, some act like bonds that offer regular income. These are known as “unit paying funds.”
Unlike bonds though, this type of UITF does not return your initial investment when it matures. Because of this, you need to watch its NAVPU and sell when it’s at a high point.