Open-ended investment company (OEIC)

An open-ended investment company, or OEIC (pronounced ‘oik’), is a modern and more flexible version of a unit trust. It uses the basic structure for collective investments commonly used in Europe and the US. As with unit trusts, the size of the fund is variable – more units or shares can be issued if there is demand for them – and the price of shares or units in the fund is fixed by the value of its underlying assets.

However, instead of having two prices for its shares (one for buying and one for selling), as a traditional unit trust does, an OEIC has one price for both; management fees and commissions are charged separately. This is designed to make it easier for you to see exactly what you are getting. OEICS can be operated as an ‘umbrella’ structure, which means that, within each, there can be various sub-divisions of funds, each with their own objectives and the ability to invest in different financial products.

This flexible structure makes it cheap and easy for OEICS to keep up with changing consumer demands.

• See Ed Bowsher’s video tutorial: Why we like investment trusts.

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