OEICs or investment trusts
Open Ended Investment Companies (OEICs) or investment trusts are investment companies that pool investors’ money and use expert fund managers to invest in equities and/or bonds, for example. They give you diversified (spreading your investment across many different investments), professionally managed exposure to the growth potential of global stock markets.
What are Open Ended Investment Companies (OEICs)?
OEICs allow you to pool your money with other investors so that you can invest more cost-effectively in many different equities and bonds, than if you were to buy each security separately.
They are ‘open ended’ which means that more shares can be issued each time someone invests, which means you can always buy or sell whenever you want. They are UK domiciled funds and offer a wide range of choice by sector, region and by the type of investment, such as equity funds and bond funds.
What are investment trusts?
Investment trusts are closed ended, meaning they issue a fixed number of shares, which are publicly traded on the London Stock Exchange.
As with OEICs, investment trusts allow you to pool your money with other investors so that you can invest more cost-effectively in many different equities and bonds, than if you were to buy each security separately.
Investment trusts can borrow money so that they can increase their exposure to stock markets and therefore potentially enhance returns (known as gearing). Gearing will exaggerate market movement both up and down which could mean sudden and large falls in value.
As stock market-listed companies, investment trusts also have independent boards to represent your needs as a shareholder, meaning you get the same level of protection as the shareholders of any other public limited company.
Differences between open-ended and closed-ended funds
There are some key differences between investment trusts and OEIC funds: