Investment Companies vs. Unit Trusts
When selecting an investment fund it is important that you first clarify your objectives and requirements and then select a fund that is most suitable to meet these. It is worth considering all types of fund before investing to ensure that the one selected offers the best value at the time of purchase. Many of our recommended portfolios include a combination of Investment Companies, Unit Trusts and OEICs.
Each type of fund has many different characteristics - these are listed below:
Unit Trusts
A trust where each unit holder is entitled to share in the assets of the trust in proportion to the number of units owned. Control is exercised by Managers, subject to approval by Trustees within the terms of the Trust Deed.
- Open ended. All sales and purchases are dealt for cash and go to and from the managers. Net redemption's will lead to the managers having to sell some of the underlying investments to meet the demand for cash.
- Price of a unit is based on net asset value (NAV) of the underlying investments.
- Dealing costs are normally front-end loaded with a B/O spread on dual price funds and an initial charge on single priced funds.
- UTs can have only one class of unit and all units are to be treated equally.
- UTs are allowed to advertise subject to approval by the Trustees.
- Annual management charges are typically 1% to 1.5%.
OEICS
A company where each holder is entitled to share in the assets of the company in proportion to the number of shares owned. Control is exercised by Managers.
- Open ended. All sales and purchases are dealt for cash and go to and from the managers. Net redemption's will lead to the managers having to sell some of the underlying investments to meet the demand for cash.
- Price of an OEIC is based on net asset value (NAV) of the underlying investments.
- Dealing costs are normally front-end loaded with an initial charge on single priced funds.
- OEICs can have multiple share classes with different charging structures.
- OEICs are allowed to advertise.
- Annual management charges are typically 1% to 1.5%.
Investment Companies
A public limited company whose shares are listed on the Stock Exchange. Management is exercised by Directors, subject to the Memorandum and Articles of Association.
- Closed ended. Shares are dealt on a secondary market. Therefore, in the secondary market there is no cash flow into or out of the fund.
- Price of a share is not laid down by any formula but set by normal market forces. This can result in a share price sitting at a discount to NAV or a premium to NAV and increases volatility compared with UTs.
- Shares are bought and sold on the Stock Exchange and therefore costs include brokerage, stamp duty and PTM levy.
- ICs may issue different classes of share. This can include long term borrowing, and introduces the concept of gearing.
- Its are not allowed to advertise to the public to buy their shares (concessions are given for some new issues and IT savings schemes).
- Annual management charges are typically 0.5% to 0.75% on older trusts but on more recent trusts are similar to unit trusts. Running costs for very small trusts can be disproportionate.