Open Ended Investment Companies (OEIC’s) & Unit Trusts

OEICs and Unit Trusts are forms of collective investment, which allow individuals to participate in a large portfolio of quoted securities by pooling their money together with other investors. This gives the individual access to a much wider spread of holdings than can normally be achieved with smaller sums of money, which in turn reduces the risk. The fund is divided into units or shares, which are valued on a daily basis and reflect the underlying value of the fund. This value will fluctuate on a daily basis with market conditions.

Basically, OEICs and Unit Trusts are a flexible and relatively cheap way to invest in the stock market. They are run and regulated in a similar way, and you can hold them within an ISA. There are differences (an OEIC is set up as a company, whereas a unit trust is a trust) and you will usually find that unit trusts have two prices – the ‘bid’ price, which is the lower price you receive when you sell, and the higher ‘offer’ price you pay to invest. The difference between the two prices is commonly known as the bid/offer spread. With an OEIC there is usually a single price to buy and sell shares, so it’s easier to see the actual effect of charges. However, unit trusts are expected to become ‘single-priced’ eventually, with some already so. It is therefore important that you understand the way your investment charges are made – the Key Features document explains this.

It can cost fund managers less to run an OEIC than a Unit Trust, so some companies reduced their initial charges when they converted their unit trusts to OEICs, although annual charges remain much the same.

Another advantage of OEICs is that it may be cheaper to switch between a manager’s different funds than between unit trusts because of the OEIC’s structure. Each may be made up of various sub-funds, and when you buy shares in an OEIC you actually invest in one or more of the sub-funds. Changing between sub-funds e.g. UK for European or vice versa, is easier than switching between completely separate unit trusts. Several OEIC managers have therefore cut switching charges or even offer free switches.

Income (the yield, dividend or interest) from these funds can be distributed or accumulated within the fund and is paid gross.

From April 2016, new personal allowances have been introduced namely Personal Savings Allowance and Dividend allowance.

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