What is an OEIC fund?
OEICs allow investors to access assets they wouldn’t be able to otherwise. This is done using a collaboration system, with all pooled assets being invested across properties, shares, fixed interests, and other assets.
Although there are other investment funds in the UK, OEICs are unique because the price is determined once daily by the underlying NAV (net asset value), there’s no limit on how much an investor can buy, and you won’t find them on the London Stock Exchange.
What are the advantages and disadvantages of investing in this type of fund?
The most obvious advantage of investment in an OEIC, instead of directly on the stock market, is reduced risk because investments are split between different assets. Additionally, OEICs are managed by investment experts, helping the pool achieve its maximum potential.
Everything isn’t always plain sailing with OEICs, as your money is still at risk and the market can be fairly volatile. Additionally, you will need to pay fees on the investment and you will likely have to pay tax. OEICs, when compared to closed-ended funds, are susceptible to enormous withdrawals and inflows of cash, which can lead to unfavourable selling and losses for investors.
What are the benefits of investing in an OEIC over a unit trust?
OEICs and unit trusts are very similar because they’re open-ended and the price is determined by the NAV. However, OEICs are governed by company law and a unit trust is governed by trust law. This is critical to investors, as those invested in an OEIC own the underlying asset, whereas money invested in a unit trust belongs to the trust.
Another benefit of investing in an OEIC instead of a unit trust is the pricing structure. Both are tied to the NAV, but an OEIC is priced once a day. However, a unit trust has two prices: “bid” and “offer”, which are designed to protect the value for existing investors.
What is the process for buying and selling shares in an OEIC fund?
Once you’ve chosen which company to use, investing in an OEIC is relatively easy. Although it depends on the provider, it involves opening an account and filling out personal details, and choosing what to invest in. Then, using the platform, you’ll be able to buy and sell shares as you please.
What are the key differences between an OEIC and an investment fund?
Mutual funds and OEICs are essentially the same. i.e., actively managed systems designed to pool investor finances. However, there are a number of differences including:
- OEICs are typically favourable when it comes to tax because of the company-based legal structure.
- OEICs are traded through the day, whereas mutual funds are traded at the close of the trading day.
- Mutual funds are bought through a broker – OEICs are purchased directly from the fund manager.
How does the performance compare to an ETF?
EFT (exchange-traded fund) is a means of backing an entire market, like FTSE 100, which lowers risk and increased diversity, leading to steady returns. When compared to OEICs, the performance of an EFT isn’t underpinned by the actions of a fund manager because they’re passively managed, which means they can sometimes perform better.
Investing in an OEIC is often easier than interacting with different markets, but you still need to be prepared to risk losing money and you need to have trust in the OEIC you choose.
