What Are Oil and Gas UITs?

The oil and gas industry is currently offering lucrative returns to people who are ready and willing to invest in direct drilling and oil explorations. The United States has mapped out various investment vehicles that may appeal to different investors to help fuel the operations of domestic oil and gas drilling. One of the types of investments which can give you considerable returns is Unit Investment Trusts (UITs) .

What is Unit Investment Trust?

UITs are similar in structure and function to stocks and bonds. A trust is broken down in proportionate shares and each share is sold to investors or unit holders. Theres a set maturity date, ten or twenty years for example, wherein each investor gains from the sale of assets. The main difference between investing in oil and gas UITs, real estate property trust, and unit trust is that each oil and gas UIT investor is directly supporting the exploration of gas and oil.

Whom Are UITs for?

As attractive and lucrative UITs are, it is worth remembering that this type of business venture is not for everyone. If you’re not a savvy risk-taker. it may be better to consider indirect oil and gas ventures. But, if you have the heart to handle risks and want to enjoy considerable tax savings and huge returns, you might want to add oil and gas UITs to your investment portfolio.

Tax Advantages of Oil and Gas UITs

With the government prodding investors to directly invest in oil and gas drilling and explorations, a unique tax incentive package has been created that most investors will find appealing. In most cases, UIT oil and gas investments will pass off around 65% or so of the investment to the following year. So, if you look at it, you may be investing a huge amount today to finance the drilling and exploration, but the government will reward you with appealing tax deductions in the subsequent years—something that you definitely won’t enjoy from the majority of other investments.

The Risks of Oil and Gas UITs

All types of investment have their own risks, and oil and gas UITs have their share. As a direct investment, investors face bigger risks. The trust will shoulder operating and maintenance expenses. Furthermore, if the well fails before the trust matures, or if there is no or little oil in the well, the investors may receive little return.

Before You Make an Oil and Gas UIT Investment

Oil and gas UITs appear attractive and risky at both ends of the spectrum, so it is best that you fully understand what you’re getting into before taking the leap. All gas and oil UITs have inherent risks and how much risk you’re willing to take should guide you in making the apt decision. For instance, investing in developed oil wells is less risky than exploration projects, but the latter could yield greater returns and bigger tax deductions.

It would also be wise to learn every detail of the investment, including taxes, operating charges, and fees. Work with a tax consultant if you’re less knowledgeable about these things and engage only with a registered and reputable investment company .