unit trusts and OEICs
an introduction to unit trusts and OEICs
Unit trusts and open-ended investment companies (OEICs) are types of collective investment, which allow investors to pool their money with other investors to invest more efficiently in stock and bond markets. As 'open-ended' funds, more shares are issued each time someone invests and sold when they exit. In practice, this means that the asset pool will expand and contract as people buy and sell out of the fund and that the price of the fund always reflects the value of the underlying stocks or bonds.
These funds usually have income and accumulation units. The income units pay out any income generated by the fund (such as dividends from shares or coupons from bonds), while for accumulation units, this is simply added back into the units. Each fund will also have different types of share class with different fee structures. Some, for example, have inbuilt commission structures, allowing payments to be made to brokers and advisers. Increasingly fund managers offer 'clean' share classes, which do not contain any facility for such payments and therefore have a lower annual management charge.
When buying unit trusts and OEICs, investors may have to pay an upfront fee, and then the ongoing annual management charge which is deducted automatically from the unit value.
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