understanding financial jargon
Open Ended Investment Company (OEIC)
An Open Ended Investment Company (or OEIC) is a company is a collective investment fund that invests in companies and sectors on behalf of investors. Investors can freely buy and sell shares in the fund, which grows or shrinks accordingly. However, the shares issued are not traded between investors on the stock market but are only sold and repurchased by the investment company. The value of the shares you own in an OEIC always reflects the value of the fund's assets. OEIC's are similar to Unit Trusts but with a few key differences.
Share Pricing: An OEIC fund has a single price, directly linked to the value of the fund's underlying investments. Shares are bought
and sold at this single price, with no spread, unlike Unit Trusts which have separate Bid and Offer prices.
Flexibility: An OEIC fund can use the expertise of different fund management teams to benefit both large and small investors, while streamlining the administration and management costs of the fund, so investors receive less paperwork, and often have lower costs. Private individuals can invest in the same funds as large institutions and pension fund managers.
Complexity: In legal terms, unit trusts are much more complex, which is one reason why many unit trusts have converted to OEICs. Investors in an OEIC buy shares in that investment company, while Unit trust investors participate in the assets of the trust, without actually owning those assets, or the company running the Unit Trust. In one sense an investor in an OEIC is taking a position on how he or she rates the performance of the fund managers who investor their behalf, rather than taking a position on how the underlying assets will perform although this is a subtle distinction.
Management: OEIC's are protected by an independent depository and managed by an authorised corporate director, whereas unit trust assets are protected by an independent trustee and are managed by a fund manager.
Charges: Although both OEIC's and Unit Trusts have similar charge structures with typical initial purchase charges of 3%-5%, and an annual management fee of between 0.5% and 1.5%, initial charges on Open Ended Investment Company's are more transparent and should be shown as a separate item on your transaction statement. Most OEIC's can be bought via a fund supermarket to achieve discounts on charges.
Both OEIC's and Unit trusts are different from other types of investment companies such as Investment Trusts which trade on the stock market, where the number of shares in issue is largely fixed, and those shares can be traded as normal company shares.
What to do if you need more help
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