What is an OEIC?

An OEIC (Open Ended Investment Company - pronounced 'oik') is a pooled collective investment vehicle, in company form. OEIC's first became available in May 1997 and were introduced as a more flexible alternative to established unit trusts.

An OEIC may have an 'umbrella' fund structure, allowing for many 'sub-funds' with different investment objectives. This means you can invest for income and growth in the same fund without having to worry about purchasing different types of shares. OEIC's may also offer different share classes for the same fund.

By being "open ended", OEIC's can expand and contract in response to demand - just like unit trusts. The share price of an OEIC is the value of all the underlying investments, divided by the number of shares in issue. As an 'open-ended fund' the fund gets bigger and more shares are created as more people invest. The fund shrinks and shares are cancelled as people withdraw their money.

You can invest into an OEIC through an ISA (Individual Savings Account). Each time you invest in an OEIC fund, you will be allocated a number of shares. You can choose either income or accumulation shares - depending on whether you are looking for your investment to grow or to provide you with income - providing they are available for the fund you want to invest in.

What are the benefits of investing in an OEIC?

 Like unit trusts, OEIC's provide a mechanism of investing in a broad selection of shares, thus aiming to reduce the risks of investing in individual shares. Therefore, you have an opportunity to share in the growth potential of stock market investment.

You have access to your savings when required, although you should regard investing in an OEIC as a medium to long term investment. You may invest by lump sum and/or by regular monthly payments. Through the OEIC structure the flexibility to switch easily between the investment funds provided by your OEIC manager.

Do remember that the value of your fund(s) and any income you choose to take depends on the performance of investments in that fund. Where a fund invests overseas, exchange rate changes may also cause the value of your fund to fluctuate.

What is a Unit Trust?

A unit trust is an open-ended, collective investment; open-ended because the number of 'units' in each trust will vary according to supply and demand; and collective, because it puts together money from many different investors, which is then looked after by a professional investment manager. The unit trust fund manager then works to ensure that the money is invested properly and delivers the very best returns possible to all investors, by using their money to invest in Stocks and Shares (Equities), Government Gilts and Corporate Bonds.