Open-ended investment companies, or OEICs, are the babies of the mutual funds market. Unit trusts and investment trusts first appeared before World War II, but OEICs were introduced just three years ago by the Treasury.
But the number of OEICs is growing rapidly, with many fund management groups now opting to convert their unit trusts to the new structure. They say the benefits are worth the upheaval.
OEICs were devised to combine the best features of unit and investment trusts. They too are collective investment vehicles, where investors share in the performance of a large fund of stocks, shares and other investments. Like investment trusts, they are companies which issue shares, as opposed to unit trusts which issue units. But while investment trusts are listed on the stock exchange, OEICs are not.
In common with unit trusts, on the other hand, they are open- ended. This means they expand according to the demand for their shares. Because of this their shares can be bought and sold freely, and this avoids the problem experienced by investment trusts of the stock trading at a discount or premium to the net asset value (NAV) of the fund.
But from the investors' point of view, probably the best feature of the OEIC structure is one which is borrowed from neither forerunner. OEICs have a single price, rather than a bid-offer spread. "Though there may well be front-end charges levied on an OEIC when you first buy into it, investors may find the pricing easier to understand," says Anne McMeehan of the Association of Unit Trusts and Investment …