Bluffer's guide to the domestic Oeic

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The Independent Online
What is an Oeic?

An Oeic is an Open Ended Investment Company. Essentially it is a corporate version of a unit trust - a vehicle for pooling the resources of individual investors to invest in domestic and overseas stock markets.

When will I be able to invest in an Oeic?

You already can if you want to invest your money through an offshore fund manager. Oeics are already popular in Europe and Dublin and Luxembourg have built up thriving markets. The Treasury expects domestic Oeics to make their debut in 1996.

Will my Oeics be PEPable ?

Yes. The Treasury has said that the tax treatment for Oeics will be the same as for authorised unit trusts.

How does it differ from a unit trust?

The main difference, at least initially, will be that shares in Oeics will be bought and sold at a single price, thus eliminating the bid/offer spread on unit trust transactions.

This spread, which adds to investors' charges, can be as high as 13 per cent. But single pricing may also be introduced for unit trusts.

Unlike unit trusts, which have one underlying investment fund, Oeics will act as a corporate umbrella for any number of funds. Investors will be able to switch easily between funds through different classes of shares. The shares will also have different charging structures.

How does it differ from an investment trust?

Investment trusts are companies listed on the Stock Exchange that manage investments for their shareholders. They are closed-end funds and cannot raise money by creating new units.

Oeics will not necessarily have a stock market quote. Because they are open ended, the number of shares in issue may vary daily and their price will represent the value of the funds. Investment trust prices are influenced by stock market supply and demand and may be either at a premium or a discount to net asset value.

How will the charges compare?

Charges will be decided by individual management companies and will vary from fund to fund. Different classes of shares will have different charging structures reflecting the varied funds and the way they are sold.

Full disclosure - the requirement for companies to show how their charges reduce the yield on your investment - applies only to the life and pensions industry. This may apply to unit trusts and Oeics next year depending on the outcome of negotiations with the Personal Investment Authority.

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