Unit trusts and OEICs

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30. Share exchanges and fund switches

1. Share Exchange

   Another way of acquiring unit trusts/OEICs is to swap other securities for them. This is a rather painless way of tidying up small holdings of shares.

   The managers will normally stipulate a minimum value for a share exchange, but the value of the securities to be exchanged can usually be topped up with cash.

   The share exchange represents a disposal of the unwanted securities at their bid value for CGT purposes. The bid value is invested in units/shares at the prevailing offer price (or single price + dilution levy + initial charge for OEICs).

   Where the fund managers wish to take the shares into their own portfolios, enhanced terms may be offered for the exchange. For example, the bid/offer spread for the unit trusts could be waived and dealing charges on the securities to be exchanged can be absorbed by the fund.

2. Fund Switches

   Investors can switch one set of units/OEIC shares for another set in the same range of funds. Effectively this entails selling one set of units/shares and buying another set in different funds to the same value.

   The sale of the first set of units/shares will take place at the bid price (or NAV - dilution levy for OEICs). This is treated as a disposal for Capital Gains Tax purposes. The purchase of the next set of units/shares takes place at the offer price (or NAV + dilution levy + initial charge for OEICs).

   A fund switch between units/shares within the same range of funds usually attracts a reduction in the initial charge on the purchase element.

   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

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