Open Ended Investment Companies (OEICs)
An Open-Ended Investment Company (OEIC), often pronounced “oik”, is a widely used type of pooled investment fund in the UK. It pools capital from many investors and invests it according to a defined strategy. While it operates in much the same way as a unit trust, the legal structure is different. An OEIC is set up as a company, and investors buy shares rather than units.
Day-to-day management of the fund is carried out by an Authorised Corporate Director (ACD). The ACD is responsible for making investment decisions and ensuring the fund operates within its stated objectives. Oversight is provided by a depositary, which holds the fund’s assets and monitors the ACD to help protect investors and ensure regulatory compliance.
Open-ended structure and fund design
OEICs are described as open-ended because the number of shares in issue is not fixed. When new investors invest, new shares are issued. When investors sell, shares are cancelled. This structure allows the fund to expand or contract in line with demand.
Many OEICs are set up as umbrella companies. Under this arrangement, a single OEIC can contain multiple sub-funds, each with its own investment focus, risk profile, and charging structure. This makes it easier for investors to access a range of strategies under one provider.
Typical sub-fund themes may include:
- UK or overseas equities
- Global or specialist bond portfolios
- Smaller companies
- Region-specific strategies, such as North America or Asia
Within each sub-fund, investors are usually offered a choice between income shares, which pay out any income generated, and accumulation shares, where income is retained and reinvested to support long-term growth.
Valuation, pricing, and dealing
Unlike many unit trusts that operate with a bid and offer price, OEICs are usually single-priced. This means shares are bought and sold at a single price based on the fund’s Net Asset Value (NAV). In some cases, an initial charge may apply separately, or a dilution adjustment may be used to ensure that transaction costs from large trades do not disadvantage existing investors.
Buying and selling typically takes place once per business day, using a system known as forward pricing. This means transactions are processed at the next valuation point rather than the price shown at the moment an order is placed.
As with all collective investments, OEICs carry ongoing management charges and transaction costs, which will reduce overall returns. The value of investments can rise or fall, and returns are not guaranteed.
THE VALUE OF INVESTMENTS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.
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