What is an OEIC? The basics

You've probably heard of shares and funds, maybe even an ETF. But have you heard of an OEIC?

Like exchange-traded funds (ETFs) and investment trusts, OEICs let you invest in a mix of shares, bonds and other investments without having to buy each one yourself. But there are some important differences in how they work.

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What is an OEIC?

An OEIC (pronounced 'oik') stands for open-ended investment company. It's a type of fund that pools money from lots of investors to buy investments, such as shares in companies and bonds.

A professional fund manager chooses and manages these investments for you. When you invest, you buy shares in the fund itself, rather than directly owning shares in the companies it invests in.

How does an OEIC work?

An OEIC is called 'open-ended' because it can create new shares when people invest and cancel shares when they take their money out.

The price of shares in an OEIC is usually worked out once a day, based on the value of the fund's investments, minus what it owes.

Depending on what the fund invests in, an OEIC can also help spread your money across different investments. This is known as diversification, and it can help reduce risk, although it won't remove it completely.

You could make money if the value of your investment rises. You may also receive income from the fund, such as dividends or interest. Depending on the type of shares you hold in the fund, this income may be paid to you or reinvested. Neither income nor growth is guaranteed.

How are OEICs priced?

Unlike individual shares or ETFs, OEICs aren't usually bought and sold at a live price. Instead, the fund normally sets its price once a day, at a fixed time.

So, when you place an order, you won't know the exact price you'll pay or receive. Your order will normally use the next available price, depending on when you place it and the fund's dealing times.

You can find out more in our guide to how funds are priced.

How do you buy and sell an OEIC?

You can buy and sell OEICs through investment platforms, like Fidelity. If you're not sure whether a fund is an OEIC, start by checking its details on your investment platform. You can also find information about what the fund invests in, its risks and its charges.

What charges will you pay?

Like other funds, OEICs come with charges to cover the cost of running and managing them.

One of the main costs is the ongoing charges figure (OCF). This shows most of the fund's yearly running costs as a percentage of your investment.

For example, if a fund has an OCF of 0.5%, that's around £5 a year for every £1,000 invested, assuming the value stays the same.

But that's not necessarily the only cost. You may also pay a fee to the investment platform you use, along with other costs, such as those involved when the fund buys and sells investments.

Charges vary between funds, and even small differences can add up over time and affect how much you get back. So it's worth checking the costs on your investment platform before investing, as some fees may be shown separately.

What should you think about before investing in an OEIC?

Not all OEICs are the same. Some invest in shares from around the world, while others focus on a particular country, industry or type of investment. So the level of risk can vary from one fund to another.

Before choosing a fund, it's worth asking yourself a few questions:

• Your goals – what are you investing for, and when will you need the money?
• The risks – what does the fund invest in, and how comfortable are you with potential losses?
• The mix of investments – does the fund spread your money across different areas, or focus on just one?
• The charges – what will you pay to invest and hold the fund?

It's also worth thinking about how long you can leave your money invested. Investing is generally better suited to the long term, often five years or more, as this gives your money more time to ride out market ups and downs. But the right timeframe will depend on the fund and your goals, and returns are never guaranteed.

Even if you invest in several funds, they may own many of the same shares. So it's worth checking what you're actually investing in. You can usually find a fund's main holdings on your investment platform.

• Read: What is an exchange-traded fund? The basics
• Read: Expert tips for choosing an investment fund
• Read: A to Z investing jargon buster

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment, you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.