Similarities vs Differences of Unit Trusts and Open-Ended Investment Companies

Two of the most common types of investment fund are unit trusts and open-ended investment companies (OEICs). They share many traits, but they also have some important differences.

Both types have proved popular in recent years. This is because they can offer a practical and affordable way for clients to diversify across different asset classes without the pressure of having to routinely make calls on individual stocks and shares. This is particularly true if investors do not have the expertise. Buying units or shares can ultimately provide a much wider spread of investment than an investor could have otherwise achieved with the same amount of money. OEICS have also increased in popularity due to their simplified structure. Many Unit Trusts have converted into OEICS in recent years.

Similarities Between Unit Trusts and OEICs

In many respects unit trusts and Open-Ended Investment Companies are the same. They are both open-ended. The price of each unit also depends on the net asset value of the fund’s investment portfolio.

You can generally choose to have dividends paid to you as income or reinvested in the fund.

Both fund vehicles can invest in a wide range of asset classes, geographies, and sectors.

Unit trusts and OEICs are collective or mutual funds. They both allow the monies contributed by a number of investors to be “pooled” together for investment in the stock market. 

A fund manager also runs both Unit Trusts and OEICS. In addition, both Unit Trusts and OEICS charge fund holders management fees.

Differences Between Unit Trusts and OEICs

The key difference between the two is pricing.

Unit Trusts have an “offer” price at which an investor can buy them, and a “bid” price at which an investor can sell them. OEICs, on the other hand, have a single price. The difference of the two costs, (bid-offer spread) is typically 6-7%. This is an extra cost that an investor must weigh up. Charges for an OEIC are deducted explicitly from the total amount invested.

This leads many to state that OEICs pricing is fairer and more transparent.

Investment in a unit trust involves buying a proportion of the total fund – known as a “unit” – while an OEIC involves buying an actual share in the investment company.

Another subtle difference between the two is that trust law governs a Unit Trust, whereas company law governs an OEIC.

How We Can Help with Unit Trusts and Open-Ended Investment Companies

Here at The Compensation Experts, we work with solicitors who have years of experience with financial mis-selling claims. This means that they can help with the similarities and differences between unit trusts and open-ended investment companies. If you think you may have a potential claim, contact us today by filling in or contact form. Or call us to speak to one of our friendly knowledgeable agents.