Open Ended Investment Companies (OEICs)
An Open-Ended Investment Company, or OEIC (pronounced ‘oik’), is a common type of collective investment fund in the UK. Legally organised as a public limited company, it functions similarly to a unit trust by pooling money from various investors. However, instead of purchasing ‘units’, investors acquire ‘shares’ in the company.
An OEIC is overseen by an Authorised Corporate Director (ACD), who is responsible for the daily investment decisions. Instead of a trustee, an OEIC has a depositary that holds the fund’s assets in custody and provides oversight to ensure it is managed in accordance with regulations and its objectives.
OEICs are ‘open-ended’, meaning the fund manager issues new shares when investors invest and cancels them when they withdraw. This allows the fund’s size to grow and shrink according to investor demand.
A key feature of many OEICs is their ‘umbrella’ structure. The main OEIC company can manage several distinct sub-funds, each with its own investment goal, risk level, and fee structure. This enables investors to access a variety of strategies from a single provider easily.
For example, sub-funds might focus on:
- UK equities
- Global bonds
- Smaller companies
- Specific regions like the USA or Asia
Each sub-fund typically offers different share classes, such as ‘income’ shares that pay out dividends, and ‘accumulation’ shares that reinvest them to boost growth.
Pricing and dealing
Unlike the traditional ‘bid-offer’ spread of many unit trusts, OEICs are generally single-priced. You buy and sell shares at the same price, which is based on the fund’s Net Asset Value (NAV). An initial charge may be added separately, or a dilution adjustment might be applied to protect existing investors from the transaction costs of large trades.
Dealing usually happens once a day based on the fund’s valuation point. This is known as ‘forward pricing’, meaning your transaction is carried out at the next calculated price, not the one quoted when you place your order. All funds have ongoing charges and transaction costs, which will affect your overall return.
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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