OEICS

First introduced via the Open-Ended Investment Companies (Investment Companies with Variable Capital) Regulations 1996, which were made on 11 November 1996 and came into force on 6 January 1997. These regulations were enacted under provisions of the European Communities Act 1972 therefore were known as the ECA Regulations.

The SIB regulations, the Financial Services (Open-Ended Investment Companies) Regulations 1997 were approved by the SIB Board on 16 January 1997 and came into effect as from that date.

The first commercial OEIC was launched by Threadneedle in 1997. OEICs are open-ended; the fund is equitably divided into shares which vary in price in direct proportion to the variation in value of the fund's net asset value. Each time money is invested new shares are created to match the prevailing share price; each time shares are redeemed the assets sold match the prevailing share price. In this way there is no supply or demand created for shares and they remain a direct reflection of the underlying assets.

Unit Trusts

Unit trusts are open-ended; the fund is equitably divided into units which vary in price in direct proportion to the variation in value of the fund's net asset value. Each time money is invested new units are created to match the prevailing unit buying price; each time units are redeemed the assets sold match the prevailing unit selling price. In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets.

The trust manager makes a profit in the difference between the purchase price of the unit or offer price and the sale value of units or the bid price. This difference is known as the bid/offer spread. Typically the bid/offer spread is 5% but this may vary. The trust deed often gives the manager the right to vary the bid/offer spread to reflect market conditions, with the purpose of allowing the manager to control liquidity. In some jurisdictions the bid/offer spread is referred to as the "bid/ask spread".

To cover the cost of running the investment portfolio the manager will collect an annual management charge or AMC. Typically this is 1 to 2%.


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