Unit Trusts & OEICs

OEICs & Unit Trust Investments are a form of collective investments.

They allow individuals to participate in a large portfolio of assets by pooling their money together with other investors.

This gives the individual access to a much wider spread of holdings than can normally be achieved with smaller sums of money, which in turn reduces the risk.  The fund is divided into units or shares, which are valued on a daily basis and reflect the underlying value of the fund. This value will fluctuate on a daily basis with market conditions.

Basically, OEICs and Unit Trusts are a flexible and relatively cheap way to invest in the stock market. They are run and regulated in a similar way, and you can hold them within an ISA.

There are differences – an OEIC is set up as a company whereas a unit trust is a trust and you will usually find that unit trusts have two prices – the ‘bid’ price which is the lower price you receive when you sell, and the higher ‘offer’ price you pay to invest. The difference between the two prices is commonly known as the bid/offer spread. With an OEIC there is usually a single price to buy and sell shares, so it’s easier to see the actual effect of charges.

However, unit trusts are expected to become ‘single-priced’ eventually, with some already so. It is, therefore, important you understand the way your investment charges are made.

It can cost fund managers less to run an OEIC than a Unit Trust, so some companies reduced their initial charges when they converted their unit trusts to OEICs, although annual charges remain much the same.

When the holding is surrendered, if there is a gain, this is subject to capital gains tax. However, each individual has the benefit of an annual allowance and as long as the gain together with any other gains you may have in the same tax year is less than the allowance, there is no tax to pay. Any gain in excess of the annual allowance will be taxed at a rate of 18% if, after adding the net taxable gain to your taxable income in the relevant tax year, the total falls within the basic rate income tax band. A tax rate of 28% applies to gains or parts of gains which exceed the upper limit of the basic rate income tax band. The annual Capital Gains Allowance for 2017/187 is £11,300.

The value of investments can fall as well as rise. You may get back less than you invested.

How can we help?

If you have any questions or would like to arrange a meeting to discuss your investments, please give us a call on 01423 223 640 or complete the online enquiry form and we will get back to you to discuss your requirements.

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