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.