Unit trusts and OEICs

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1. What is a unit trust?

A unit trust is a collective investment vehicle created under trust. The trust pools the money of numerous individual investors to create a portfolio of financial securities (the fund) with a specific investment objective - income, growth, or a blend of the two.

Unit trusts are often criticised by investment experts for under-performing benchmark indices and for high charges. But for many people, they are useful stepping stones to direct share ownership.

• They provide potentially superior returns to fixed deposits over the longer term.
• They offer diversification of asset backed investments to modest investors.
• They give investors the opportunity to invest easily in specialist sectors and foreign markets.

According to the Investment Management Association (IMA) there were 129 authorised fund providers managing some £243bn in January 2004. Click here for the largest fund providers and the assets they currently manage.

Unit trusts were first offered to the UK public in 1931 by the M&G Group under a deed that allowed little variation in investment policy. Flexible unit trusts were first offered to the public in 1936 and the basic format survives to this day.

Since the 1986 Financial Services Act, regulation of the industry has been conducted by Self Regulating Organisations (SROs) answerable to the Securities and Investment Board (SIB). Today, unit trusts are regulated by SIB's successor, the Financial Services Authority (FSA).

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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