Unit Trusts and OEICs

Unit Trusts and OEICs (Open Ended Investment Company) are pooled investment funds where investors’ contributions are combined and used to purchase the underlying investments in line with the aims and objectives of the fund. They provide the means to invest in a broad selection of shares that reduces the risk to the private investor who would normally invest in individual shares.

They can either be managed funds with a mix of investment types, e.g. equities, gilt, cash, etc, or they can be specific sector funds, e.g. UK Equities, Global Fixed Interest or Property.

There are thousands of Unit Trusts from which to choose, and hundreds of OEICs, and it is important to seek guidance as to which funds are most appropriate for your requirements. For example, it is possible to invest in a Unit Trust or OEIC via an ISA thereby providing a tax-advantageous investment.

Professionally managed portfolios, Unit Trusts and OEICs can be set up with as little as a £500 lump sum or by regularly saving £20 per month.

A trustee, normally a bank or life company, holds the cash and underlying assets of a unit trust on the investor’s behalf, thereby providing added security for the investment.

Unit Trust or OEIC?

The OEIC was introduced in May 1997 as a more flexible and versatile alternative to the Unit Trust. The principal difference between Unit Trusts and OEICs is the charging structure. Unit Trusts have a buying and selling price, known as the offer and bid, between which there is usually a 5% difference. OEICs are single priced funds.

Since their introduction, the uptake on OEICs has grown steadily and they are beginning to supercede Unit Trusts in popularity. The pricing issue has a lot to do with this but also other reasons are that the sub-fund choices available in an OEIC tend to be more diverse and the investor has the flexibility to move between OEICs in the same management group with very little fuss. OEICs also offer different share classes for the same fund that enables private investors to invest in funds that were previously the preserve of large organisations.

Please click here if you are interested in buying a Unit Trust or OEIC online

Investment Warning:
Past performance is not necessarily a guide to the future and the value of units, and the income provided from them, can go down as well as up. You are not guaranteed to get back your original investment at any time.