Open-Ended Investment Companies (OEICs)
OEICs are a type of company in the UK that is designed in a way so that its investment criterion and funds size in other companies can be continually adjusted in line with performance. The shares of the company are listed on the London Stock Exchange (LSE) and the share price is based upon the underlying assets. An OEIC also has no limit to the amount which can be invested per month unlike other investment companies.
There is no difference between the bid and ask price for an OEIC so the buyer and seller will get the same amount of capital. From an investment perspective, there isn’t money to be made through the initial stock spread. However, if a fund manager invests your OEIC shares into other stock that rises in value then the OEIC investment value will rise. Therefore, any money to be made, isn’t made through the spread but in the rising share prices of a successful investment.
How does an OEIC work?
- You buy shares (in an OEIC) or units (in a unit trust).
- The fund manager puts your money together with money from other investors and uses it to invest in the fund’s underlying assets.
- Every fund invests in a different mix of investments. Some only buy shares in British companies, while others invest in bonds or in shares of foreign companies, or other types of investments.
- You own a share of the overall unit trust or OEIC – if the value of the underlying assets in the fund rises, the value of your units or shares will rise. Similarly, if the value of the underlying assets of the fund falls, the value of your units or shares falls.
- The overall fund size will grow and shrink as investors buy or sell.
- Some funds give you the choice between ‘income units’ or ‘income shares’ that make regular payouts of any dividends or interest the fund earns, or ‘accumulation units’ or ‘accumulation shares’ which are automatically reinvested in the fund.