Unit trusts and OEICs

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2. What is a unit?

When you invest in a unit trust, the number of units you are allocated is calculated by dividing the amount you invest by the 'offer price' at the time. So if the offer price is £2.50, an investment of £1,000 will buy 400 units.

The offer price is not fixed but rises and falls in line with the value of the trust's assets.

• If the trust's assets rise in value, so will the offer price of its units.
• If the trust's assets fall in value, so will the offer price of its units.

Simple!

Most unit trusts issue two classes of units:-

1. income or distribution units which pay dividends and other income on set dates in the year.
2. accumulation units which roll up dividends and other income within the fund.

Note that the number of units in issue is not static, which is why unit trusts are often referred to as 'open ended'. The fund managers can create new units or cancel existing ones according to demand from buyers and sellers.

• Investors buy units from fund managers and, if they later decide to turn them back into cash, they sell them back to the fund managers.
• The fund managers can accumulate units that have been sold back to them (in a 'box'), cancel them or sell them on to new investors in the fund.

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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