If you have some funds available and are looking for the best way to invest them and hopefully make a tidy profit, then you might come across the term OEICs or Unit Trusts. These are both very popular types of investment funds, and when you are looking for an investment opportunity, they can be worth considering.
Before you make a decision on where and how to invest your funds, you should fully understand what an OEIC is, how they work and how you can invest in them. This guide covers everything you need to know about OEICs and some handy tips to help you along the way.
What is an OEIC?
OEIC stands for Open Ended Investment Company, and they are a type of fund or company in the United Kingdom that is designed to invest in other companies. They are professionally managed investment schemes where your money is pooled with other investors and invested in a selection of shares, stocks and other assets.
All OEICs have their shares listed on the London Stock Exchange, and the price of these shares depends mainly on the underlying assets of the fund. As OEICs are open-ended, the shares are issued every time someone invests. You are free to buy or sell shares whenever you please, and the size of the fund will grow and shrink to reflect these changes.
The majority of OEICs are designed for medium to long term investments, usually between five and ten years.
How do OEICs work?
When you make an investment in an OEIC, you are buying shares in the company. The number of these shares will constantly be changing over time as investors buy and sell them freely. The money you invest will be combined with all the other investors’ funds, and then invested in stocks, shares and assets by a dedicated fund manager.
Where the money is invested is referred to as the fund’s investment portfolio and is managed by the fund manager. The fund manager often has more buying power than other investors, because of all the investors’ money being pooled together. This often means they can make more substantial and more diverse investments than any one investor could make alone.
As your money will be spread across a number of different investments, the risk is reduced compared to investing in just one place.
The value of an OEIC depends on the performance of its investment portfolio; as the value increases, the value of your shares will also increase. The same will apply should the value go down.
How to invest in OEICs?
If you think investing in an OEIC is a good option for your money, then you need to consider the right one for you. This could depend on a number of different factors:
- Growth or income: Consider what it is that you want from your investment. Some OEICs will offer regular dividends from your investment, while others allow you to continue reinvesting your profits in order to maximise growth.
- Risk: You will need to decide how much risk you are willing to take on with your investment. If you want an investment option that is low risk, then choose an OEIC that invest in less volatile markets.
- Lump sum or monthly investments: You can choose how you want to invest in an OEIC. Some will allow you to make monthly deposits, while others will have a lump sum payment.
- Sector: Look into where the OEIC will be investing your money and think about whether it is a sector you have knowledge about. Consider whether it is a sector that is likely to grow or struggle in the future.
- Previous performance: Before deciding on an OEIC, be sure to check how well it has performed in the past. While these past performances shouldn’t be used as an indicator for the future; they can indicate how successful they have been.
There are three main ways to invest in OEICs:
- Through a management company: You can invest in an OEIC by opening an account or registering with a management company. Once you have signed up, you can select the OEIC you wish to invest in. There may be an entry fee of between 3% to 5% and a yearly management charge of roughly 1% to 2%.
- Through an independent financial advisor (IFA): If you choose to go with an independent financial advisor, then they will help you choose which OEIC is best for you and they will buy the shares on your behalf.
- Through an online stockbroker or share dealing service: Similarly to using a management company, you can sign up and open an account for an online service. You can deposit your money online and choose an OEIC to invest in.
Investing in OEICs is a great way to invest in various assets, without having the hassle of managing them yourself.