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Some funds will carry greater risks in return for higher potential rewards. Investment in smaller company funds can involve greater risk than is customarily associated with funds investing in larger, more established companies. Above average price movements can be expected and the value of these funds may change suddenly.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Open Ended Investment Companies (OEICs)

An OEIC works in a very similar way to a unit trust except that an OEIC is legally constituted as a limited company (Plc). OEICs have been operating outside the UK for some time, but only since 1997 has it been possible to operate an OEIC in the UK.

OEICs are not trusts and do not therefore have a trustee. Instead, however, 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 then can set up sub-funds without gaining individual authorisation for individual sub-funds. Each sub-fund has different investment aims, e.g. a sub-fund may specialise in the shares of small companies or in a particular country, e.g. the USA. Each sub-fund can also have different charges and minimum and maximum investments. Unit trusts are allowed to do this too, but few do.

Most OEICs only have one unit price and the initial charge is added as an extra. Unit trusts always have two prices, the lower or bid price is what you get when you sell back to the managers; the higher or offer price is what you have to pay when you buy.

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