What is the difference between OEIC & Unit Trust funds?

 

Unit Trust

Unit trusts are open-ended; the fund is equitably divided into units which vary in price in direct proportion to the variation in value of the fund's net asset value. Each time money is invested new units are created to match the prevailing unit buying price; each time units are redeemed the assets sold match the prevailing unit selling price. In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets. Unit trust trades do not have any commission.

The trust manager makes a profit in the difference between the purchase price of the unit or offer price and the sale value of units or the bid price. This difference is known as the bid-offer spread. The bid–offer spread will vary depending on the type of assets held and can be anything from a few basis points on very liquid assets like UK/US government bonds, to 5% or more on assets that are harder to buy and sell such as property. The trust deed often gives the manager the right to vary the bid–offer spread to reflect market conditions, with the purpose of allowing the manager to control liquidity. In some jurisdictions the bid–offer spread is referred to as the "bid–ask spread".

To cover the cost of running the investment portfolio the manager will collect an Annual Management Charge or AMC. Typically this is between 0.6 to 2 percent of the market value of the fund.

Open Ended Investment Companies (OEIC)

In the UK many unit trust managers have converted to OEICs in recent years. OEICs normally have a single price for purchase and sale, although recent regulatory change now permits dual pricing too, in line with unit trusts.

The motivation for conversion is often cited as a simplification and pre-cursor to offering funds Europe-wide under EU rules.

To cover the cost of running the investment portfolio the manager will collect an Annual Management Charge or AMC. Typically this is between 0.6 to 2 percent of the market value of the fund.