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A Guide to Lump Sum investments


Unit trusts, Investment Trusts and OEICs

Unit trusts, Investment Trusts and Open Ended Investment Companies, (OEICS) are  similar types of investment vehicles. They aim to provide easy access to shares across the world's stock markets but operate in slightly different ways.

If you are unfamiliar with Unit Trusts, Investment Trusts or OEICs click on the link to read a more detailed explanation first.


Unit trusts, Investment Trusts and OEICS are often referred to as collectives and can be run by a single fund manager, joint managers or a team of investment managers. Each has an investment objective, which may focus on capital growth, income, high income or a combination of these.

Investment is made via pooled funds, which will often lessen risk and create extra diversification because they enable investment in a wide range of stocks and shares.

What is the difference between Unit trusts, Investment Trusts and OEICs?

Investment Trusts and OEICs are investment companies, whereas a unit trust is set up under a trust deed. Although both are open-ended, they each operate in a slightly different way:

Investment Trust and OEICs sell investors shares (because they are a companies), whereas Unit trusts sell investors units. All represent an equal amount of the fund.

Assets held in an OEIC are held by the nominated depository whereas assets in a unit trust are held by the trustee(s).

Funds in an OEIC are single-priced – i.e. you buy and sell the shares at the same price. Unit trusts have two prices – the bid price at which you sell units and the offer price at which you buy units. This is called bid/offer spread.

When you buy units (or shares) in a fund, you own a portion of the assets in the fund; the value of your investment is determined by the unit price multiplied by the number of units that you own.

The minimum amount for a single investment is usually around £500 but you can often invest on a regular monthly basis, where the minimum monthly sum required may be as little as £10, but is around £50 on average (depending on the fund).

The Investment Management Association (IMA) has categorised funds into various sectors. Sectors are defined by the asset classes that the funds invest in (bonds, cash, equities, property etc.) and also whether the fund is designed to provide income or growth, as well as the geographical regions that the funds invest in.

The IMA regularly monitor the funds to ensure that managers are investing in the areas they state in the fund objective.

What are their charges?

The initial charges can vary widely, depending upon the type of investment made and where/how the fund is purchased. The initial charge can be anything up to 5.5%, although by investing through a fund supermarket or discount broker you can often achieve a lower initial charge.

The annual management charges, tend to range from 0.5% to 1.75%, but once again, this often varies between funds. The different types of unit trust or OEIC will have different prices and may also vary within sectors.

If you want a lower annual charge then you may wish to use an index tracker fund or an exchange traded fund (ETF). These funds track a stock market or aim to replicate the constituents of an index and therefore do not need to be to be actively managed.

Unit trusts and OEICs are subject to both personal income tax on any income generated and capital gains tax on any gains made when you disinvest. Unless you hold them in an ISA. So if you have unit trust or OEIC investments not held in an ISA but aren't using your annual ISA allowance it may be worth switching them to within an ISA.

There are over 2,000 UK regulated unit trusts and OEICs, so any purchase should be carefully considered - think before you buy.

Investing in a unit trust or OEIC should be considered a medium to long term investment.


To learn about other investment options, return to the Introduction to investments section.

To learn about the following investments, if you aren't already familiar with them click on the relevant link:

However if you feel that you need some help from a financial advisor, then visit our section on obtaining financial advice, or our page on Laterlife selected services and associated advice.





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