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Unit trusts and OEICS

Benefiting from ‘pooled’ investing, these investment products can provide investors with a spread of investment risk away from that of single share investing and can offer increased protection from the effects of stock market decline, although as with all investing, they can not completely eradicate these reductions. Our Investment management Newcastle team can explain more.

Unit Trusts are a popular investment vehicle in today’s markets and are ‘open-ended collective investments’ which place the cash of many investors in to one fund, a ‘pooled fund’. This system allows investors to diversify and invest ‘collectively’ which carries the benefits of spreading their investment risk, keeping costs under control and reducing the overall fund risk. Unit trusts allow the investor to invest in the stock market but enables investors to spread their risk, benefiting from a centralised team of expert investment managers.

There are many unit trusts to choose from across a wide range of investment sectors. The managers of these trusts can buy and sell shares within the trust without tax implications, however tax liabilities can arise on dividend payments and units sold by the individual investor.

An Investment Trust is simply an investment in a company that has been set up to invest in shares of other companies. By buying shares in an investment company, the investor is in effect spreading the risk that would normally be associated with a single share investment as the value of the investment company’s shares are directly related to the spread of investments it is making. From a tax perspective, investing in Investment Trusts is treated the same as investing in shares.

An OEIC is an ‘open-ended investment company’ and is often referred to as the modern day flexible equivalent of a Unit Trust. They combine elements of both Unit Trusts and Investment Trusts, enabling the investor to pool their investments with other investors, again spreading the risk asssociated with a single share purchase.

OEICs are regulated by the FCA and the rules are based on specifically written company law, whereas Unit Trusts are based on old trust law. OEICs have a single price for buyers and sellers and charges are shown seperately, whereas a Unit Trust has a seperate buying and selling price, known as the bid/offer spread. The OEIC share price directly reflects the underlying assets of the portfolio and carries an ‘umbrella fund structure’.

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