Business Glossary

Unit Investment Trust that buys municipal bonds and passes the tax-free income on to shareholders. Bonds in the trust's portfolio are normally held until maturity, unlike the constant trading of bonds in an open-ended municipal bond fund's portfolio. MITs are sold through brokers, typically for a sales charge of about 3% of the principal paid, with a minimum investment of $1000. The trust offers diversification, professional management of the portfolio, and monthly interest, compared with the semiannual payments made by individual municipal bonds.

Many MITs invest in the securities of just one state. For California residents who buy a California-only MIT, for example, all the interest is free of federal, state, and local taxes. In contrast, a Californian who buys a national MIT might have to pay state and local taxes on interest derived from out-of-state bonds in the trust's portfolio. Also called Municipal Bond Unit Trust.