Key Takeaways
- OEICs issue and redeem shares at daily NAV.
- Managed by FCA-authorised corporate directors.
- Flexible fund size with investor inflows and outflows.
- Investor assets held separately by independent depositary.
What is Open Ended Investment Company (OEIC)?
An Open Ended Investment Company (OEIC) is a UK-based collective investment scheme structured as a corporation that pools investor funds to invest in assets such as equities, bonds, or property. OEICs issue and redeem shares daily at the fund’s net asset value (NAV), allowing flexible entry and exit for investors.
This structure differs from closed-ended funds by adjusting share supply according to investor demand, similar to mutual funds in the US or SICAVs in Europe. OEICs are regulated under the Financial Conduct Authority to ensure investor protection and transparency.
Key Characteristics
OEICs offer distinct features that benefit investors seeking liquidity and diversification.
- Variable Capital Structure: Shares are created or redeemed daily based on NAV, avoiding price distortions common in closed-ended funds.
- Professional Management: Managed by an Authorised Corporate Director (ACD) who oversees investments and compliance with FCA rules.
- Diversification Requirements: OEICs must limit exposure to any single company, with no more than 10% in one stock, supporting risk management.
- Investor Access: Shares can be bought directly or through platforms that also offer funds like BND, a popular bond fund example.
- Regulatory Safeguards: Assets are held separately by a depositary to protect investors against manager insolvency, mitigating risks such as failure to deliver.
How It Works
OEICs pool money from investors and invest in a diversified portfolio of assets. The fund’s NAV per share is calculated daily by dividing total assets minus liabilities by the number of outstanding shares, which determines the price at which shares are issued or redeemed.
This open-ended nature allows investors to enter or exit the fund at prices reflecting current market value, avoiding bid-ask spreads or discounts commonly seen in closed-ended investment trusts. It also supports liquidity, making OEICs suitable for both retail and institutional investors.
Examples and Use Cases
OEICs can cater to a wide range of investment objectives, from equity growth to income generation.
- Equity Funds: An OEIC may hold shares in companies like IVV, providing broad exposure to the S&P 500 index through a single vehicle.
- Bond Funds: Fixed income OEICs might invest in diversified bond portfolios, similar to the bond fund BND, offering steady income with lower volatility.
- Low-Cost Index Funds: Some OEICs track indices passively, aligning with themes explained in our best low cost index funds guide, ideal for cost-conscious investors.
Important Considerations
When choosing an OEIC, consider fees as actively managed funds may charge 1-2% annually, which can impact returns over time. Also, understand the fund’s investment focus and risk profile before investing to align with your financial goals.
OEICs offer liquidity and diversification but are still subject to market risks including price volatility or corporate events such as a market rally or downturn. Ensure you review fund documentation and consult advisers if needed to avoid misunderstandings about obligations and potential exposures.
Final Words
OEICs offer flexible, regulated access to diversified assets with liquidity priced at net asset value, making them a practical choice for many investors. Review available OEIC funds and compare fees and performance to find one that fits your portfolio goals.
Frequently Asked Questions
An OEIC is a UK-based collective investment scheme structured as a corporation that pools investor money to invest in assets like stocks, bonds, or property. It issues and redeems shares based on the fund's net asset value (NAV), allowing the fund size to expand or contract with investor activity.
OEICs operate as companies with variable capital, issuing new shares when investors buy in and redeeming shares when they sell out, all priced daily at NAV. Unlike unit trusts, OEICs offer a corporate structure aligned with European SICAVs and US mutual funds, providing more flexibility and direct share ownership.
An OEIC is managed by an Authorised Corporate Director (ACD), who is FCA-authorised to handle daily operations, investments, and share pricing. Additionally, an independent depositary or trustee holds the assets separately to protect investors in case the manager fails.
Being open-ended means OEICs can create or redeem shares depending on investor demand, so the fund size changes over time. This structure ensures liquidity at the NAV price without bid-ask spreads, unlike closed-ended funds which have a fixed number of shares.
Yes, OEICs are authorised and regulated by the Financial Conduct Authority (FCA), ensuring compliance with rules like diversification limits. Investors also benefit from protections such as access to the Financial Ombudsman Service and FSCS coverage up to £85,000-£120,000 if the managing firm fails.
The share price of an OEIC is based on its net asset value (NAV), which is calculated daily by subtracting liabilities from total assets and dividing by the number of shares outstanding. This reflects the true value of the underlying investments.
OEICs can invest in a wide range of assets, including equities (shares), bonds, and property. This flexibility allows investors to gain diversified exposure through a professionally managed pooled fund.
Investors can buy or sell OEIC shares directly through brokers, investment platforms, or financial advisers. Shares are priced daily at NAV, making it straightforward to enter or exit the investment with liquidity.
