4.2 ETFs and Unit Investment Trusts
ETFs and UITs offer low-cost, indexed, or sector-targeted diversification with unique structural differences regarding active management and trading liquidity.
Key NASAA Exam Takeaways
- Exchange-Traded Funds (ETFs) trade intraday on exchanges with continuous pricing, margin eligibility, and short-selling capability.
- Authorized Participants (APs) create and redeem ETF shares in-kind, keeping ETF market prices tightly aligned with NAV.
- ETFs generate fewer taxable capital gain distributions than mutual funds due to in-kind redemptions.
- Unit Investment Trusts (UITs) maintain fixed, unmanaged portfolios of stocks or bonds terminating on a pre-specified date.
Knowledge Checkpoint • Section 4.2
Which of the following characteristics distinguishes a Unit Investment Trust (UIT) from an open-end management company (mutual fund)?