OEICs vs unit trusts
OEICs explained
What is an OEIC?
OEIC stands for open-ended investment company. It’s a type of pooled investment fund you can buy shares in.
How does an OEIC work
The fund manager buys and sells assets, known as the fund’s holdings. These could include equities (shares in companies), bonds and other asset types.
The value of shares in the fund will rise or fall, depending on the changing value of those assets.
OEICs may aim to offer a regular income to investors (income funds), or target growth and reinvest any profits back into the fund (accumulation funds).
If you sell your shares in the fund, those shares will be cancelled, so the number of shares in an OEIC can change.
Explore: Income vs accumulation funds
Unit trusts explained
What is a unit trust?
A unit trust is another type of pooled investment fund, with a fund manager that buys and sells assets on behalf of investors.
To invest in one, you buy units, rather than shares.
How unit trust works
The total value of a unit fund is split into equal portions – called units. As an investor, you can buy these units and become a unitholder.
The value of units can rise or fall, in line with the value of the fund’s holdings.
Unit trusts may also give you the option to buy income or accumulation units.
There’s no limit to how many units are created within a single unit trust, so new units can be created to meet demand.
Differences between OEICs and unit trusts
OEICs and unit trusts are similar in many ways.
Both can help you access a wide range of investments, including stocks, bonds, property and commodities – helping you spread your risk, known as diversification. For example, if some holdings lose value, they could be balanced out by others rising in value.
They are also both open-ended. This means the fund manager can create more units or shares at any time to meet demand. The price of each unit or share is tied to the net asset value (NAV) of the fund’s investments.
Closed-ended funds, like investment trusts, have a fixed number of shares.
The main differences between OEICs and unit trusts relate to their:
Structure
An OEIC is structured as a company, while a unit trust is structured as a trust.
This won’t mean much to most investors but from a legal point of view, it can. Investors in a unit trust are not owners of the underlying assets – unlike investors in an OEIC.
Pricing
Another difference between OEICs and unit trusts is the way they’re priced.
Most OEICs have a single price, expressed as price per share. But unit trusts typically have dual pricing:
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Offer price – the current price you can buy each unit for, plus transaction costs
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Bid price – the current price you can sell each unit for, less transaction costs
The offer price is generally higher than the bid price. With single priced funds, the costs of buying and selling are already factored into the price.
How to invest in OEICs and unit trusts
You can invest in both OEICs and unit trusts through our Global Investment Centre.
You need to hold an HSBC UK current account or an eligible HSBC UK savings account to apply. Or, if you’re new to investing, our ready-made portfolios can help you get to grips with investing. Eligibility criteria and fees apply.
Remember – the value of investments can go down as well as up, and you could get back less than you invest.
Investing should be seen as a medium to long-term commitment, so be prepared to invest for at least 5 years.
Building an emergency fund first can help you avoid having to sell your investments too early – giving your money the potential to grow and recover from any losses.
