What are they?
An OEIC (Open Ended Investment Company) invests money in the stock market on your behalf. An investment expert - a fund manager, invests your money in a wide range of companies that matches the OEIC Investment Statement. An OEIC is designed to provide a straightforward, inexpensive and convenient way to invest in the stock market. For most people, OEIC's are easier to understand than either unit or investment trusts because they have a single price unlike unit trusts, and are not prone to discounts or premiums as is the case with investment trusts. OEIC's are predicated to take over from Unit Trusts because they are easier to understand, lead to greater competition and have lower charging structures. Some large investment companies are now moving their ISA funds from a Unit Trust Structure to that of the OEIC.
OEIC's are available in a wide range of different investments that will carry different levels of risk.
They are called open ended, as there is no limit to the amount of capital that can be invested in the fund. They are able to grow in size indefinitely. In practice, however, the fund manger will have an idea of the size of fund they think they can effectively manage.
Tax
The OEIC's has two potential liabilities to tax
1. Income tax is liable on the dividends paid by its investments.2. The gains in the value of Unit trust are potential liable to Capital Gains Tax. Non-Taxpayers and 22% Taxpayers
You pay tax at source on the dividends received by the Unit Trust and you cannot re-claim the tax. You can use the £7200 Capital Gains Tax Allowance to offset against the gains you have made. This allowance is only available on encashment of the Unit Trust or asset and you cannot backdate gains to previous years.
22% Taxpayers
You can use the £7200 Capital Gains Tax Allowance to offset against the gains you have made. This allowance is only available on encashment of the Unit Trust or asset and you cannot backdate gains to previous years.
40% Taxpayers
You can use the £7200 Capital Gains Tax Allowance to offset against the gains you have made. This allowance is only available on encashment of the Unit Trust or asset and you cannot backdate gains to previous years.
Pros
They are able to help basic and higher rate taxpayers reduce their overall tax liability by use of your Capital Gains Tax Allowance.
There are a wide variety of funds available that carry differing levels of risk.
They have a single price for purchase and sale that makes there pricing easier to understand.
Cons
If you are a lower or non-taxpayer you pay tax you cannot reclaim on the dividends paid to the fund.
The value of your investment may go down as well as up.
