Unit Trusts and Open-Ended Investment Contracts (OEICs)

Understanding Unit Trusts and OEICs

Unit Trusts and Open-Ended Investment Companies (OEICs) are types of collective investments.
They enable a group of investors to pool their money together, which is then managed by a professional fund manager.
Each investor buys units (in the case of unit trusts) or shares (in the case of OEICs) which represent a portion of the overall fund.
The money collected from investors is used to buy a diversified portfolio of investments, typically a mix of stocks, bonds, and other assets.

The Role of Unit Trusts and OEICs in Investments

Unit Trusts and OEICs offer investors the opportunity to invest in a diversified portfolio without needing a large amount of capital.
If the investments in the fund increase in value, the value of the units or shares will also increase.
Conversely, if the investments fall in value, so too will the value of the units or shares.
Income generated by the fund, such as dividends from shares or interest from bonds, can be distributed to investors or reinvested back into the fund.

Unit Trusts, OEICs and Financial Planning

Unit Trusts and OEICs are often included in investment plans as they offer diversification and professional management.
They are suitable for both short-term and long-term goals, depending on the nature of the fund and an investor’s personal risk tolerance and investment objectives.

Risk and Reward with Unit Trusts and OEICs

While Unit Trusts and OEICs offer the potential for profit, they also carry risk.
The value of units or shares can go down as well as up, and you may not get back the amount originally invested.
Different funds will have different levels of risk, depending on the specific investments within the fund.
It’s crucial to understand that past performance is not a reliable indicator of future results.

Diversification with Unit Trusts and OEICs

Diversification is a key feature of Unit Trusts and OEICs, as funds typically hold a range of different investments.
This spread of investments helps to limit risk as poor performance in one area could be offset by better performance in another.
Nevertheless, the level of risk can still vary between different Unit Trusts and OEICs, and should be carefully considered before investing.