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A Guide to Collective Investments

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With a collective investment your money is pooled, along with that of other investors to create a large capital sum. Collective investments or unit trusts, investment trusts or open ended investment companies (OEICs) as they are otherwise known, enable investors to invest in a basket of securities of different companies and spread the investment risk.

Once the collective sum is pooled, a professional fund manager will then use this capital sum to manage a portfolio of investments. This approach to investment opens investment opportunities that otherwise would not be available for an individual investor and minimise the effects on your capital of fluctuations of individual share values.

As an experienced Independent Financial Adviser (IFA) in Lincoln we work in partnership with our clients to ensure they have the best investment strategies in place for their personal circumstances and financial objectives, ensuring they are safeguarded from risks where possible. At Castlegate, as an IFA in Lincoln we can advise and support you with all aspects of investment planning to ensure you have the most efficient strategies in place.

There are three main types of collective investment; unit trusts, OEICs and investments trusts, and while all are collective investments there are some key differences between them. Let’s take a look at each one in a bit more detail.

Unit Trusts

A unit trust is a large fund of monies and/or investments pooled together and controlled by trustees with the aim of gaining capital appreciation, income, or both. Unit Trusts are made up of ‘units’, each unit will have both a buying price and a selling price.

These investments are open ended, which means that units are created every time an investor puts money into the fund, and liquidated when they withdraw money, so that the fund can react to demand and continually grow through prosperous periods.

Investors can then enjoy the benefits of larger investments including discounts, however during periods of poorer performance, the fund may need to sell assets to enable investors to withdraw their monies so the fund size is reduced.

Open Ended Investment Companies (OEICs)

An OEIC works in a similar way to a unit trust except that an OEIC is legally constituted as a limited company. OEICs have been operating outside the UK for some time, but only in the UK since 1997. OEICs are not trusts and do not therefore have a trustee, they have a depository which holds the securities and has similar duties to a unit trust trustee.

Most OEICs operate as umbrella funds which means that the OEIC is authorised and can set up sub-funds without gaining individual authorisation for individual sub-funds. Each sub-fund has different investment aims.

Investment Trusts

Similar to unit trusts and OEICs, the major difference is that investment trusts are companies listed on the London Stock Exchange whose sole purpose is to invest their shareholder’s funds in shares of other companies or securities.

An investment trust pools together the funds of investors in order to make investments in a range of companies. Investment trusts are based upon a fixed amount of capital which is divided into shares. This makes them closed ended, unlike the open ended structure of unit trusts. Once the capital has been divided into shares, investors can then purchase the shares.

Investment trusts can be more volatile than unit trusts or OEICs due to them being able to borrow money for their investments and the ability to invest in unquoted or unlisted companies not trading on the stock market. It is always recommended to seek independent financial advice to make sure you are making an informed decision.

At Castlegate, as an IFA in Lincoln and the surrounding areas we can support you with all aspects of investment planning to ensure you have the most effective and efficient strategies in place. As an experienced IFA in Lincoln we provide financial advice that is tailored and bespoke to you and your unique personal circumstances.

If you are looking for an IFA in Lincoln or across the East Midlands to provide advice and guidance on investment planning and wealth management, please do not hesitate to get in touch to talk about the most appropriate solutions for your personal circumstances and financial objectives.

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