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Unit Trust & OEIC Guide

 

Summary

Unit Trusts and Open Ended Investment Companies
Unit Trusts and OEICs (Open Ended Investment Company) are pooled funds of investors' money, which are used to buy a range of shares, gilts, bonds or cash deposits. Both Unit Trusts and OEICs are open ended funds meaning that the size of each fund can vary according to supply and demand. Unit Trusts and OEICs provide a mechanism of investing in a broad selection of shares, thus reducing the risks of investing in individual shares. Typically, a Unit Trust or OEIC is worth anything from £5m to £300m. There are thousands of Unit Trusts and hundreds of OEICs to choose from, so it is important to select the right fund to meet your needs.


When you invest in a Unit Trust you buy a unit, which means a portion of the total fund, OEICs issue shares. Each Unit Trust and OEIC has its own investment objective and the fund manager has to invest to achieve this objective. The fund manager will invest the money on behalf of the unit holders (or shareholders). The value of your investment will vary according to the total value of the fund, which is determined by the investments the fund manager makes with the fund's money. To cover the costs of running a fund you will usually have to pay an initial charge when units or shares are purchased, and an annual fee for ongoing costs such as administration. Some fees are declared as a percentage of your investment, others are built into the price. You can invest into a Unit Trust or OEIC through an ISA (Individual Savings Account). Usually, there are no additional charges for having an ISA, and you have the advantage of the investment being tax-free.
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