OEICs - How they work.

An OEIC (Open Ended Investment Company) is an investment company set up to carry out investment on behalf of investors and is therefore a collective investment. An OEIC allows the individual investor to participate in a large portfolio of shares with many other investors. Identical units are sold to investors, each representing a very small fraction of a portfolio of perhaps 50 or 100 different share holdings. The investments are held for investors by the Investment Company. It is this difference in corporate structure which differentiates and OEIC from a Unit Trust. There is generally an initial charge which covers setting up costs and also an annual management fee, however, OEICS normally have a single price and there is no bid/offer spread.

There are many different types of OEICS

	Very general funds, including most markets and types of share.
	Very specific funds that concentrate on a particular market sector or type of share.
	Some unit trusts aim for a high income.
	Some trusts look for above average capital growth.
	The many so-called 'balanced' funds look for a mix of both capital growth and income.

OEICS form the core of many other financial products, including many ISAs, pensions and life assurance products. Unlike investment trusts, OEICS are open-ended. Shares can be created when investors invest and liquidated when investors dispose of their holdings. There is a direct relationship between unit values and the underlying investments.

Taxation
All gains made by a OEIC Holding are subject to Capital Gains Tax (CGT) if the gains are greater than the annual CGT allowance of the individual. There is no income tax payable on growth,however, income from a trust is normally treated as unearned income and subject to tax at your normal rate. Individual fund Key Features documentation provide more information on this topic. The taxation of individual funds within an OEIC is dependant on the investment area and this is covered within the Key Features documentation of the fund.

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