What is an 'Open Ended Investment Company - OEIC'

An open-ended investment company (OEIC) is a type of company or fund in the United Kingdom that is structured to invest in other companies with the ability to adjust constantly its investment criteria and fund size. The company's shares are listed on the London Stock Exchange, and the price of the shares are based largely on the underlying assets of the fund. These funds can mix different types of investment strategies such as income and growth, and small cap and large cap.

BREAKING DOWN 'Open Ended Investment Company - OEIC'

An open-ended investment company is used in the United Kingdom for investing in the stock market. Investors’ money is pooled and spread across a wide range of investments, such as equities or fixed-interest securities. This diversification helps reduce risk of losing an investor’s principal. OEIC funds offer the potential for growth or income as medium to long-term investments for five to 10 years or longer.

Due to changes in U.S. legislation, U.S. residents may not hold shares in OEICs. U.S. shareholders must have the OEIC sell their shares or transfer their investments to U.K. residents.

Features of an Open-Ended Investment Company

U.K. investors 18 years or older may invest in a wide range of funds managed by industry experts. Various levels of risk are available for capital growth, income or a combination of both. Shareholders may invest for themselves or for their children. When children turn 18 years old, they hold the investment in their own right.

OEICs are useful for investors who do not have the time, interest or expertise for actively managing their investments. Investors may provide a single payment or monthly payments with minimum amounts depending on the fund, and access to funds online or over the phone is generally easy. Shareholders may pay a fee when moving between funds. However, shareholders may invest tax-free through a stocks and shares Individual Savings Account (ISA).

However, investment values and resulting income are not guaranteed and may increase or decrease, depending on investment performance and currency exchange rates for funds investing overseas. Therefore, a shareholder may not get back the original amount invested.

Charges for Open-Ended Investment Company Shares

Investors pay an initial charge of around 2% when buying new shares, as of 2016, which lowers the amount of money going into the fund. An annual management charge (AMC) may be 1.5% or more of the value of an investor’s shares and covers the fund managers’ services. Funds that are not actively managed, such as index trackers, have much lower fees.

The total expense ratio (TER) or ongoing charges figure (OCF) is quoted by most funds. Each charge includes the AMC and other expenses used for comparing different products. The TER and OCF do not include dealer charges that can add significantly to annual costs if the fund has a high turnover rate.

The exit charge for selling shares is a percentage of the total value of the sale. Many OEICs do not charge exit fees.

Difference Between Open-Ended Investment Companies and Unit Trusts

In the United Kingdom, unit trusts (UT) and OEICs are the two most used types of investment funds. Unit trusts consist of a manager who buys stocks and bonds for holders of a fund, in an open-ended format. Each unit is priced based on the net asset value of the underlying assets of the fund, and the price is only given once each day. OEICs, on the other hand, create and cancel shares instead of units as investors enter and exit the fund, much like a public company

The two also differ in the way that they are priced. Unit trusts will have two prices, the bid price (price per unit received for each unit sold back to the fund) and the offer price (the price to purchase each unit of the fund). OEICs publish only one price per day. 

RELATED TERMS
  1. Open-End Fund

    Open-end funds sell shares directly to investors based on their ...
  2. Investment Company

    An investment company is a corporation or trust engaged in the ...
  3. Fund Company

    Fund company is a commonly used term to describe a corporation ...
  4. Unit Trust - UT

    A unit trust is an unincorporated mutual fund structure that ...
  5. Unitized Fund

    A unitized fund is a type of fund structure that uses pooled ...
  6. Investor Shares

    Investor shares are mutual fund shares structured for investment ...
Related Articles
  1. Investing

    4 Alternatives To Traditional Mutual Funds

    A rich offering of attractive alternatives have the open-ended mutual fund facing obsolescence.
  2. Financial Advisor

    When is a Mutual Fund the Best Investment Option?

    ETFs and their multitude of strategies are super-popular, but when it a good old mutual fund the best choice?
  3. Financial Advisor

    5 Characteristics of Strong Mutual Fund Shares

    Discover some of the basic characteristics shared by good mutual funds that investors can use to help them in selecting funds.
  4. Investing

    Closing Mutual Funds: Investment Protection Or Trap?

    Discover the characteristics of closing funds, the reasons why they close and key factors to consider.
  5. Investing

    Trading mutual funds for beginners

    Learn the basics about mutual funds, including the types of strategies available and the different fees they may charge.
  6. Investing

    How Mutual Fund Managers Pick Stocks

    Learn about how mutual fund managers choose stocks based on the type of funds they manage and the investment goals of the funds' shareholders.
  7. Investing

    A Guide For Picking Long Term Mutual Funds

    Learn about considerations for investors when buying shares in a mutual fund for a long-term investment, including fees, type of management and portfolio goals.
  8. Investing

    Introduction To Institutional Investing

    Investopedia explains: Learn about institutional investing and all of the major players in this field.
  9. Investing

    Liquidation Blues: When Mutual Funds Close

    Underperforming mutual funds can be liquidated, leaving investors down and out.
RELATED FAQS
  1. What are typical trust fund management fees?

    Learn about trust fund management fees, such as the annual management fee, annual expense ratio, brokerage commissions, and ... Read Answer >>
  2. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund finds and solicits investors with large amounts ... Read Answer >>
Trading Center