Unit trusts and OEICs

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12. OEICs - pricing

Like unit trusts, the pricing of OEIC shares is based on Net Asset Value (NAV) and they are usually priced on a forward rather than on an historic basis.

Unlike unit trusts, the shares are single rather than dual-priced. This simply means that at any one time there is one price for buyers and sellers alike, and no spread between bid and offer prices.

Single-pricing sounds attractive. In practice buyers and sellers don't transact at the same price when charges are taken into account.

• Buyers have to pay an initial charge and possibly a 'dilution levy' on top of the price of the share.
• Sellers have to deduct a 'dilution levy' and possibly an exit charge from the amount they receive per share.

For now the principle to take on board is that the OEIC pricing system is not very different from that of unit trusts. Despite all the talk of single pricing, a de facto 'spread' emerges when the initial charge and dilution levy are added in.

However, it is arguable that OEIC pricing is more transparent and fairer than unit trust pricing because:-

• The initial charge and the (discretionary) dilution levy are both explicit charges (i.e. not concealed in the pricing of the shares).
• The dilution levy, where applied, is only paid by investors who are creating expenses for the fund by forcing the fund managers to enter the markets to buy or sell the underlying assets.

For fund management groups, the OEIC may hold advantages:-

• The single-priced OEIC is internationally marketable, whereas the dual-priced unit trust is unfamiliar to non-UK investors.
• The fund managers can issue different classes of shares for creating, say, retail and institutional funds with different combinations of annual and initial charges. Future developments may see the creation of mixed funds containing different classes of assets (e.g. securities and property) as opposed to securities-only funds at present.

1. What is a unit trust? 2. What is a unit? 3. The trust deed and scheme particulars 4. The people behind a unit trust 5. Charging structure of unit trusts 6. Pricing of units - FSA rules on maximum offer price 7. Pricing of units - FSA rules on minimum bid price 8. Pricing of units - in practice 9. Pricing of units - historic and forward pricing 10. OEICs - Open Ended Investment Companies 11. Shares in OEICs 12. OEICs - pricing 13. OEICs - charges 14. Taxation of unit trusts and OEICs - Introduction 15. Tax treatment of dividends from equity funds 16. Tax treatment of coupons from non-equity funds 17. Capital Gains Tax 18. Tax shelters 19. Investment powers of fund managers: 'eligible investments' 20. Diversification 21. Fund classification: risk gradings 22. Selecting a fund: Defining your objectives 23. Selecting a fund: Active vs passive 24. Selecting a fund: lump sum vs regular savings 25. Selecting a fund: Past performance 26. Where to buy unit trusts and OEICs 27. Buy with or without advice? 28. The mechanics of buying 29. The mechanics of selling 30. Share exchanges and fund switches 31. Investor protection 32. Conclusion

• Exchange Traded Funds