Here in the UK, there are currently three key types of collective funds that private investors can consider: unit trusts, exchange traded funds (ETFs) and open-ended investment companies (OEICs). Below, we will look at each in turn.
Unit trusts
Once the most dominant investment funds on the market, this option is based around a trust where investors own ‘units’ within the trust that are in proportion to the investment they have made. As it is open-ended, the trust can create additional units for new investors, or cancel units when investors opt to cash in and exit.
ETFs
The most recent addition, ETFs have a corporate structure, but shares are traded via the stock exchange. As a result, they can be bought or sold whenever the exchange is open. The share price of an ETF is decided by the market rather than calculated by the fund manager. Generally, the market price of ETF shares closely match the value of their underlying investments.
OEICs
Whilst considered the successors of unit trusts, OEICs today exist alongside them. Rather than a trust-based structure containing unitholders, an OEIC uses a company-based structure of shareholders. To individual investors, OEICs often look like unit trusts, possessing the same regulatory framework and tax treatment. OEIC share prices are calculated by the fund and are based on the value of all underlying investments, with any sales and purchases through the manager typically occurring at fixed times each day.
Subtle differences define these investment options, meaning that it is always wise to seek advice before selecting a collective fund. Talk to our knowledgeable team at Hartey Wealth Management today for investment advice in Chester and Shropshire.
