Wealth Management

Unit Trusts and OEICs

A pooled investment offers ‘average’ clients an affordable way to spread their investment across a range of assets and funds. This saves the worry of buying and selling individual company shares. It also tends to reduce investment risk, because ‘the eggs aren’t all in the same basket’.

Two of the most popular types of collective investment funds are Unit Trusts and Open Ended Investment Companies (OEICs).

Unit Trust managers select different asset classes such as corporate bonds and company shares for the fund. The fund itself is split into units, each one including an element of every investment held by the fund. Units are allocated to individual investors. So the ‘small’ investor has at least a modest stake in a wider spectrum of companies than would be possible by investing directly in the stock market. The price of each unit depends on the value of the fund’s total investments and is published daily.

OEICs operate in much the same way, except that the fund is run as a company that creates and cancels shares rather than units as investors come and go.

In both cases, returns from the fund are paid through distributions of dividends received from the shares in which the fund has invested invest. Distributions can be taken as income or reinvested.

UK investors can choose from more than 2,000 unit trusts and OEICs, covering some thirty investment sectors. Confusing? We’ll advise on the sectors and funds that best meet your needs, and can then set up your portfolio.

Unless they are held in an ISA, unit trusts and OEICs are taxable. Income distributions are assessed for income tax, even if they’re reinvested. The first £5,000 per year is now tax-free, and any surplus is taxed at a lower rate than other income. On encashment, growth in excess of the Capital Gains Tax exemption (£11,700 per year in 2018-19) is taxed as a capital gain.