Investments: Unit Trusts & OEICS

There a many funds to choose from and some are valued at many millions of pounds. Each investment has a stated strategy, enabling you to invest according to your attitude to risk. Collective investments generally invest in one or more of the four asset classes - shares, bonds property or cash. Most invest primarily in shares but a wide range also invests in bonds. Some funds will spread the investment risk and have for example some in shares and some in bonds.

As an investor you buy shares/units in the hope that the values rise over time as the prices of the underlying investments increase. The price of the units depends on how the underlying investments perform. You may also get an income from your units through dividends paid by the shares (or income from the bonds, property or cash) that the fund has invested in.

You can either invest a lump sum or save regularly each month.

When you buy units in a fund, you usually pay an initial charge, which will vary from one investment to another. The fund management company takes an annual management charge directly from the investment fund. There are also other costs - buying and selling within the fund. These costs are called the total expense ratio (TER). The TER is therefore an estimate of the total ongoing costs of the investment.

No capital gains tax (CGT) is paid on the gains made on investments held within the fund. However, when you sell, you may to pay capital gains tax. For income generated from the investment there is a different tax position between funds investing in shares and those investing in bonds, property and cash.

Please note that this is only a brief summary of the tax position as at February 2009. You should be aware that tax legislation changes constantly. As with any investment it is imperative to review regularly to ensure it meets with your needs and objectives. If you would like us to review an existing Collective Investment you already have or would like to discuss setting up a new investment, please contact Sheila Tarr I.F.S.