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UK AUTHORISED OEIC OR UNIT TRUST

Index Tracker

(Also known as Index Trust, Index Tracking)

A unitised fund 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 unitised funds. 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 an OEIC 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. You can also consider a fund investing in the FTSE 250 Index which tracks smaller companies.

Some companies have both a FTSE All Share Tracker and a FTSE 100 Tracker. The FTSE 100 Tracker has the disadvantage of the fund possibly having to buy and sell shares at a poor price when they move in or out of the index. Compare with Investment Trusts some of which may have a similar portfolio but which you can buy at a discount. You can invest in most of these funds through an OEIC Maxi ISA but there is a relativey low maximum investment in this case.

Minimum Usually £500 or £1,000. Or £50 a month as a savongs scheme.

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

Suitable Lump sums. Regular savings, see 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 OEIC ISA.

Fees to pay Initial charge: Aim for an OEIC which has no initial charge.Yearly: Aim for an OEIC which has no initial charge and on which total charges (sometimes called TER) come to less than 1% a year. Many have none but others charge up to 5% initially.

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. A regular savings plan is a good idea with these if you are not sure when to invest. Be sure to check that the charges have not gone up. Ask what the TER is (a measure of all charges)? The answer should be less than 0.5% a year.

Where from FTSE All Share Index: HSBC FTSE All-Share Index Fund Fidelity Moneybuilder UK Index. FTSE 250 Share Index: HSBC FTSE 250 Index Fund.

Other types of unitised fund
Investment Trusts

Last updated 1 May 2011.