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What is an OEIC?

UK AUTHORISED UNIT TRUST OR OEIC

Index Tracker

(Also known as Index Trust, Index Tracking)

A unit trust which aims to duplicate the growth of a stock exchange index, usually an index of ordinary shares. It may also have a similar income to the index. This way the trust is always invested in shares so the trust will not underperform the market because part is in cash on deposit. Charges are generally less than for other unit trusts. There are tracker trusts for stock markets in the UK, USA, Europe, Japan and the Far East. In the UK there are different indices which different trusts track, e.g. FTSE 100 or FTSE All Share. These tracker unit trusts can also be linked to Personal Pensions and Unit Trust or OEIC Maxi ISA .

These funds are linked to an index of share prices, not retail prices. So they can go down as well as up. For the latest share indices and performance worldwide click here.

Who can invest Anyone.

How worthwhile Potentially good value as a long term investment for tax payers if you buy and sell at the right time; poor value if you don't. The FTSE All Share Trackers are probably the best bet for UK shares, although about 75% of the FTSE All Share Index is in fact invested in the top 100 companies, those which are in the FTSE 100 Index. Some companies have both a FTSE All Share Tracker and a FTSE 100 Tracker. Compare with Investment Trusts some of which may have a similar portfolio but which you can buy at a discount. When you invest in some of these trusts through a Unit Trust or OEIC Maxi ISA reduced charges apply.

Minimum Usually £1,000. £2,500 Gartmore UK Index.

Maximum Phone deals of £15,000 or more per trust may be delayed until the next valuation.

Suitable Lump sums. Regular savings, see Unit Trust or OEIC Savings Plan.

Money back A few days at the market price. You can usually buy and sell by phone.

Interest Variable. Called distribution. The before tax interest is called yield. Trusts which track overseas markets tend to have a very low yield or none at all. These trusts don't claim to track the yield of the respective indices, only capital growth. You can expect the yield of the trust to be somewhat lower than the yield of the index which is being tracked because of the yearly charges which are made by the trust.

Interest paid Usually yearly or half-yearly by cheque to you or direct to a bank account. Some trusts have accumulation units which accumulate income; with others your income can automatically buy extra units (at a charge).

Tax 10% tax is deducted from the distribution (called a tax credit) whether or not you accumulate income. Higher rate taxpayers pay extra; basic and non-taxpayers don't. The first distribution you receive after buying the units consists partly of interest and partly of an equalisation payment. This equalisation payment counts as a return of capital and is not taxable.Gains on units are liable to capital gains tax, though the managers pay no tax on gains on shares held by the trust. You can avoid all tax by investing through a Unit Trust or OEIC Maxi ISA.

Fees to pay Initial charge: Nil: All except Dresdner (0.5% spread), LionTrust (0.6% spread), Halifax (4%), HSBC FTSE 100 (4%), Nat West (0.7% spread), Scottish Amicable (4.5%). and possibly on some overseas trackers. Yearly: 0.3% Liontrust, M&G, Royal & SunAlliance; 0.5% Dresdner, Gartmore, HSBC FTSE All Share, Legal & General UK Index; 0.9% Norwich; 1% Aegon, AXA, Direct Line, Marks & Spemcer, Nat. West., HSBC FTSE 100, Sovereign, Virgin UK; 1.4% Scottish Amicable. Initial and exit charges may not apply if bought through the same company's Unit Trust or OEIC Maxi ISA.

Children Under 18, units should be held in an adult's name and can be designated with the child's name or initials.

Passbook None. Statement or certificate sent with each transaction. Report and distribution voucher usually half-yearly.

How to invest Phone the managers of the trusts listed below and ask for literature. You can buy by phone too. The UK trusts listed below have no initial charge and most have only 0.5% yearly although most of the overseas ones charge 1% a year as do other UK trackers not listed here. A few other companies, e.g. Halifax, HSBC 100 Share, Scottish Amicable have an initial charge of 4% to 5% so stay clear of them.

Where from FTSE All Share Index: HSBC UK Index, Legal & General UK Index, M&G Index Tracker. FTSE 100 Index: Abbey National Stockmarket Tracker Growth, Liontrust Top 100. Standard & Poors 500 or FT/S&P World Index US: HSBC American Index, Gartmore PSF Index USA, Legal & General US Index. Europe excluding UK: Gartmore PSF Index Continental Europe, HSBC European Index, Legal & General European. Japan: Deutsche Japan Tracker, Gartmore PSF Index Japan, HSBC Japan Index. SE Asia: HSBC Pacific Index. Click here for past performance of the indices worldwide.

Other types of Unit Trusts
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Last updated 5 June 2002