An Open Ended Investment Company (OEIC), pronounced Oik, works in a similar way to a unit trust. In fact, they are sometimes referred to as the modern version of unit trusts. When you invest in an OEIC, your money will be pooled together with other investors to buy shares in companies.
How does it work?
An OEIC is a company, which makes investments through a fund. As the investor, you will be issued shares. Like unit trusts, OEIC funds are open ended. This means the number of shares available increases when an investor buys into the fund, and decreases again when they are sold back to the company.
Who looks after your investment?
An authorised fund management group, who employ a team of fund managers, manages it. They are tasked with choosing how to invest the fund’s money. Each OEIC will have an investment objective that the fund manager will focus on.
What are the risks v returns?
The value of your shares is directly related to the value of the investments the fund has purchased, so can rise and fall in price; it is not affected by supply and demand. The risks will vary, depending on the performance of the sector and region your fund is investing in. Investing in shares is subject to greater fluctuations. But equally, the rewards can be better. Risk and higher reward potential go hand in hand.
Because of these fluctuations, you should consider an OEIC to be a medium to long-term investment. For better returns and to ride out the rises and dips in share values, be prepared to keep an OEIC investment for three to five years.
What are the costs?
OEIC pricing is easier to comprehend than Unit Trusts, as they operate a single pricing system for buying and selling shares. In terms of the set up and running costs, there are two main charges to consider:
- An initial charge.
This will be taken out from your initial investment amount. Your remaining balance is then used to buy shares at the single price.
- An annual management charge.
Usually a percentage of the fund amount, the fund manager will take this charge directly out of the fund every year.
Fees are always clearly published, but it’s important to cross compare and understand what’s reasonable, as they can vary widely. Remember, any charges will reduce the gains or increase the loss your fund makes.
Is there a minimum investment amount?
You can invest either a lump sum or make monthly payments into an OEIC. There are no limits to how much you can invest.