What are Index Participation Units? IPU's such as TIPs and Dow Diamonds mirror the value of leading market indices

Money Digest, June, 1998 by Ted Canning

Similar to a closed-end mutual fund, Index Participation Units (IPUs) are baskets of securities held in a trust. However, the basket of securities in an IPU consists of the same securities that make up the leading world market indices -- and are acquired in proportion to their weight in those indices. Thus, IPUs precisely mirror the value of those indices.

IPUs trade like stocks. For example, an investor buying 100 shares of a participation unit on the Dow Jones Industrial Average when the Dow is trading at 7,700 will own a security that is worth $7,700. If the Dow rises to 7,800, the value of the securities will increase to $7,800. All Canadian-based units trade on the Toronto Stock Exchange and all U.S.-based units trade on the American Stock Exchange (AMEX).

Ted Canning is an investment advisor with the private client division of RBC Dominion Securities. Phone (416) 842-3038.