Unit trusts and OEICs

Investment advice

Unit trusts are an example of ‘open ended investments’.

They pool the cash of many investors into one large fund (or pooled fund) which can then be invested in a variety of products, including property, bonds and shares. These funds are a good way of investing as they lower the overall risk in the investment. This is due to the nature of ‘collective investments’ which by spreading your money around lowers the risk of loose and the also gains the benefits of expert fund management.

Unit trusts differ from ISA’s in two major ways

  •  Unit trusts come under the normal capital gains tax’s
  •  But they have no limit on the amount you can invest within the fund

Unit trusts are also unique in the way they are divided up. When you invest in a unit your investment is measured in ‘units’ not shares. Hence the name Unit Trust.

Unit trusts are protected by the Financial Services and Markets Act 2000 and by an independent trustee who is the registered holder of the banks underlying assets. This is typically a large financial institution. They are responsible for;

Maintaining a register of investors

Receiving and distributing income from the trust

Overseeing the management of the trust

Open-Ended Investment Companies (OEIC’s)

Open-Ended Investment Companies (or OEICs for short) operate in a very similar fashion to unit trusts except for the fact they issue shares in their fund rather than units. The price of its shares still change in line with changes in value of the underlying assets.

However OEIC’s are a thought of as the future, with many Unit trusts converting to this structure of investment.

When providing investment advice, we would consider unit trusts and OEICs as part of a balanced investment portfolio. As with all advice, the investors individual needs and views will affect the investment products we recommend.

Please contact us if you would like to see how we can help.