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Open-Ended Investment Companies (OEICs) are stock market-quoted collective investment schemes. Like investment trusts and unit trusts they invest in a variety of assets to generate a return for investors. They share certain similarities with both investment trusts and unit trusts but there are also key differences. An OEIC, pronounced ‘oik,’ is a pooled collective investment vehicle, in company form. OEICs first became available in May 1997 and were introduced as a more flexible alternative to established unit trusts.
An OEIC may have an ‘umbrella’ fund structure, allowing for many ‘sub-funds’ with different investment objectives. This means you can invest for income and growth in the same umbrella fund, moving your money from one sub fund to another, as your investment priorities or circumstances change. Some OEIC providers allow you to do this without charge as you stay within the same share class (with the same charging structure). OEICs may also offer different share classes for the same fund.
You may invest into an OEIC through a stocks and shares Individual Savings Account (ISA). Each time you invest in an OEIC fund, you will be allocated a number of shares. You can choose either income or accumulation shares, depending on whether you are looking for your investment to grow or to provide you with income, providing they are available for the fund you want to invest in.
Like unit trusts, OEICs provide a mechanism of investing in a broad selection of shares, thus aiming to reduce the risks of investing in individual shares. Therefore, you have an opportunity to share in the growth potential of stock market investment. However, do remember that your capital is not secured and your income is not guaranteed. You have access to your investment when required, although you should regard investing in an OEIC as a medium to long term investment. You may invest a lump sum make regular monthly payments. Through the OEIC structure there is the flexibility to switch easily between the investment funds provided by your OEIC manager.
OEIC shares are bought and sold at a single price. All charges, such as the initial charge, are shown separately, making it easier to understand exactly what costs are involved.
Funds with low or no initial charges may have a penalty exit fee for short term investors. This is to encourage people to keep their investment in the fund; the charges decrease the longer the time invested. Most funds have different charges for each share class. Your tax situation will depend on the type of distribution you receive, which in turn will depend on the type of OEIC you have invested in. If you have invested in an OEIC via a stocks and shares ISA, you will not have to pay any further tax. Income from investments held within ISAs does not have to be declared on your tax return.
If you are holding an OEIC investment outside an ISA and you receive a distribution, you will receive a tax voucher from the fund manager showing both the amount that you are getting and the amount of tax on the distribution that has been paid by the manager.
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