Final answer:
UITs can indirectly invest in mutual funds by purchasing shares of a management company, which manages the mutual fund's diversified portfolio. By doing so, UIT shareholders gain exposure to the mutual fund's performance and returns, participating in mutual fund profits without direct ownership of mutual fund shares.
Step-by-step explanation:
The main answer to how a Unit Investment Trust (UIT) that invests in shares of a management company indirectly buys mutual fund shares involves understanding the structure of investment funds. A UIT can invest in a variety of securities, including shares of a management company, which in turn manages a mutual fund. By buying shares in the management company, the UIT is indirectly investing in the mutual fund, as the performance of the management company is tied to the performance of the mutual funds it manages.Explanation: The investment process begins when investors purchase shares of a UIT, contributing capital that the trust can then deploy. If the UIT invests in a management company, it gains exposure to the mutual fund's diversified portfolio. The UIT shareholders indirectly benefit from the mutual fund's returns when the management company's value increases, as mutual funds consist of stocks or bonds from different companies and aim to provide returns based on the collective performance of these assets.Conclusion: By investing in a management company, a UIT gains indirect exposure to a mutual fund's asset diversification and performance, allowing investors to participate in the profits generated by the mutual funds managed by the company without directly owning mutual fund shares.