Oeics - pronounced "oiks" - are to be introduced early next year, once consultations on their status are completed and legislation is passed by Parliament.
Despite their unpleasant-sounding name, Oeics are not greatly dissimilar from otherpooled funds such as unit trusts, which use savers' money to invest in a range of equities.
The level of investor protection, and rights to compensation if things go wrong, will be the same as at present. Savers will be able to buy and sell Oeics just as simply as they can unit trusts.
Any money invested will be looked after by fund managers in the same way as before and - to prevent funds disappearing - will be entrusted to a separate trustee, called a depository.
As with another type of fund, the investment trust, Oeics will be set up as companies in their own right, but with slightly different rules determined by Parliament. Their company status means that unlike unit trusts, Oeics will be bought and sold in shares, not units.
But like unit trusts, they will be able to take in and release money in response to consumer demand. The Oeic itself will sell shares to new investors and buy them back from sellers. Shares in Oeics will vary in number, and their price will be directly dependent on the value of a fund's holdings. Oeics will be able to act as umbrellas for various sub-funds, without the need to set up separate unit trusts each time.
What will mainly differentiate Oeics, however, is likely to be their different - and initially simpler - pricing structure. Unlike the bid- offer spread of a unit trust, where the price one buys at is different from the sale price, Oeics will have a single price. Charges will be added on top. This difference is likely to be short-lived, however. The way unit trusts themselves are priced is to change within the next few months.
Rules for the pricing formula will be announced shortly by the Securities & Investments Board. But as with unit and investment trusts, it will still be possible to place the Oeic in a personal equity plan's tax-free wrapper.
One of the main reasons for the appearance of this new investment vehicle is that fund managers have hitherto been unable to market unit trusts on the Continent. One fund managersaid: "The problem has been that while the British public has become used to unit trusts, foreigners did not understand how they were priced. This way things are simpler all round."
The attraction of a simple single-pricing structure has made Oeics increasingly attractive to British investors.
Some UK companies have taken advantage of this fact by setting up their operations in other financial centres, such as Dublin or Luxembourg, and marketing Oeics in Britain - without quite the same levels of investor protection as over here.
The new type of investment is partly aimed at winning these firms back. Anthony Nelson, the Treasury Minister who launched Treasury proposals on the subject last week, said: "We aim for the UK fund management industry to win business back from other European savings centres and establish a new era in domestic savings."
However, offshore funds based in Dublin and Luxembourg are unlikely to lose much in the popularity stakes. They will still compete by virtue of their generally lower costs relative to many future British Oeics, and their beneficial tax status.
The expected popularity of Oeics is likely to mean that many unit trust managers will be tempted to convert funds.
Some predictions are being made of mass conversions of unit trusts into Oeics. Philip Warland, director-general of the Association of Unit Trusts and Investment Funds, said: "Within the next two years the vast majority will have converted."
A unit trust manager would probably have to call a meeting of unit-holders to vote on the proposal. Subject to guarantees, it is hard to see savers withholding their permission.Reuse content