02: Unit trusts and OEICs

Unit trusts, OEICs and investment companies share one major characteristic: they generally consist of stock market investment portfolios that are divided up into equal identical portions. These portions are called units in the case of unit trusts and shares in the case of OEICs and investment companies. They allow investors access to a diversified portfolio of investments as well as professional management.

Unit trusts and OEICs vary greatly in the underlying investments that are held in them and the different approaches to managing them. There is a very wide range of unit trusts and OEICs.

• They can invest in different industrial and commercial sectors, international markets and across different asset classes (e.g. equities, bonds and even commercial property).
• Funds can have different objectives (e.g. income or capital growth).
• Some funds have very active management styles, and some aim simply to track chosen stock market indices such as the FTSE 100.
• The amounts that different fund managers charge also vary considerably, both in terms of the initial charge on the amount invested and subsequent annual charges.

Unit trusts and OEICs are open-ended investments. The price of the units/shares directly reflects the value of the underlying investments in the fund. If more people are buying than selling them, the manager issues more units/shares. And the number of units/shares will drop if more people sell than buy them.