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How Best to Invest in Stocks and Shares
UK AUTHORISED UNIT TRUST OR OEIC
You invest in a fund of shares managed by professionals. The units closely reflect the value of the shares held within the trust. You may receive an income and hope to make a capital gain by selling for more than you paid, but you may end up with a loss by selling for less. Some trusts specialise in particular types of shares.
Who can invest Anyone.
How worthwhile Potentially good value as a long-term investment for taxpayers if you buy and sell at the right time; poor value if you don't. High charges and the diffuculty of predicting which trust or OEIC sub fund will do well in the future, make most them unattractive. The managers can always point to one individual trust which has done well at any particular time giving the illusion of good management.
According to an article in the Investors Chronicle on 15 September 2000 only 20% of funds beat the index over 5 years and only 14.1% over 10 years. But managers of these funds make a habit of closing down and merging trusts which have not done well. So in reality a far smaller proportion of trusts launched 10 years ago would have beaten the index because large numbers have been closed down or merged with other funds.
Consider instead Unit Trust or OEIC Index Tracker or Investment Trust Shares.
Minimum Usually £250, £500 or £1,000.
Maximum None.
Suitable Lump sums.
Money back At the market price; usually a few days, at most 10 working days.
Interest Variable. Called distribution. The before tax interest is called yield; different types of trusts have different yields. The yield is usually calculated after deduction of the yearly fund charge. Some trusts calculate the yield without deducting the charge which gives the impression of a higher yield. These are marked with a 'C' in the Financial Times unit trust prices page.
Interest paid Usually half-yearly. Some managers can arrange a monthly income. By cheque to you or direct to a bank account. Some trusts have accumulation unlts which accumulate income, with others your income automatically buys extra units at an extra charge.
Tax Tax is deducted from the distribution; all or part of the distribution which comes from dividends on UK shares. Non-taxpayers cannot reclaim the tax from the Inland Revenue. Higher rate taxpayers have to pay extra even if income is accumulated. 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 capital gains tax if they make gains on shares held by the trust. You can avoid some of the tax by investing through a Unit Trust or OEIC Maxi ISA.
Fees to pay Initial charge usually 5%-6% included in difference between buying and selling price of 5½%-7%. Yearly charge 1%-1½% deducted from income or capital.
Passbook None. Statement or certificate sent with each transaction. Report and distribution voucher usually half-yearly.
Children Under 18, units should be held in an adult's name and are designated with the child's name or initials.
Risk High but not as risky as buying individual shares. The value of units goes down as well as up. The shares owned by the trust are held by a Government approved trustee.
How to invest Phone the managers of the trust you are interested in and ask for their literature; you can buy by phone too. They will send you a contract note and you then send your money. Sales can also be made by phone. Watch what the newspapers say or follow a hunch.
Where from Around 160 trust managers offering around 2,000 trusts or OEIC sub-funds. If you are interested read about other types of Unit Trusts or OEICS
Other types of Unit
Trusts
Investment Trusts
Offshore Funds
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Last updated 20 June 2003