All three give small investors easy access to the stock market at a relatively low price because fund managers can buy shares in bulk. They also spread your risk by buying a broad range of investments (see box below).
Patrick Connolly, at Chart-well Investment Management in Bath, says unit trusts are far more popular than investment trusts but not necessarily for rational reasons: "Most investors understand unit trusts better and most financial advisers will push them because investment trusts don't pay commission."
Investment trust charges are lower and Mr Connolly says their 10-year performance often beats unit trusts on fees alone. "Yet very few investment trust PEPs are sold and it will be exactly the same picture under the new individual savings accounts. Investment trusts are usually recommended by stockbrokers or private investors with a bit of specialist knowledge."
He says differences between unit trusts and Oeics remain marginal and most investors pay little attention to which of these two mechanisms they use.
Donna Bradshaw, of Fiona Price & Partners, a firm of independent financial advisers, recommends a unit trust for smaller investors using up their annual PEP allowance, but suggests investment trusts to people with larger portfolios who are happy to take a greater risk.
"Investment trusts are good value because you can buy them at quite a significant discount at the moment, around 15 or 16 per cent. You will see the usual benefits of share growth plus a narrowing in this discount over time," she says.
PEPs will be replaced by ISAs in April but PEPs taken out before then will retain their tax advantages. "ISAs will essentially be the same product with a new name and a slightly lower limit for investment," says Ms Bradshaw. In the first year you can invest up to pounds 7,000 in an ISA, pounds 5,000 thereafter.
Factsheets: Unit Trust Information Service, 0181-207 1361; Association of Investment Trust Companies, 0171-431 5222. Websites: www.aitc.co.uk; www.hemscott.co.uk (Hemington Scott); www.iii.co.uk (Interactive Investor); www.investment- funds.org.uk (Association of Unit Trusts and Investment Funds); www.moneyextra.com; www. moneyworld.co.uk; www. trustnet.co.uk
These invest in shares or bonds. The funds issue units, which represent the value of an underlying portfolio of investments. The price you pay relates directly to the value of these assets. Charges can rise to more than 5 per cent initially, with further annual management fees of up to 1.5 per cent. As with Oeics and investment trusts, you can invest through lump-sum or regular savings and bring them inside a PEP wrapper.
These arrived in 1997, and some of the leading investment houses have converted from unit trusts. One main benefit is that Oeic units cost the same whether you are buying into the fund or selling up, whereas unit trusts have one price for buying and another for selling. Charges are slightly lower and paid separately rather than being buried within the fund.
These are quoted companies that invest in other companies, rather than trading in goods and services. You can buy shares in an investment trust, which rise and fall in price according to how much investors are willing to pay for them. There is no direct link between the share price and the value of a trust's underlying assets. The share price can be lower than the value of the trust (known as a discount) or higher (a premium).Reuse content