What is an OEIC?

• Open-ended investment companies are often referred to as the modern day and flexible equivalent of the unit trust. They combine the elements of unit trusts and Investment trusts enabling you to pool your investments along with other investors. This helps to spread the risk and enables you to take advantage of the skills of a professional managing the fund.
• OEICS are regulated by the FSA. The rules are based on specifically written company law, whereas unit trusts are based on old trust law.
• OEICS have a single price for buyers and sellers and the charges are shown separately. A unit trust has a separate buying and selling price (bid/offer spread).
• The OEIC share price directly reflects the underlying assets of the portfolio
• An umbrella fund structure, which means that there are different classes of share. Each sub share fund can be invested in a different area if required.

Investment Trusts

An investment trust is simply a company that has been set up to invest in shares of other companies. By buying shares in an investment company, the investor is in effect spreading the risk that would normally by associated with a single share investment because the value of the Investment Company's shares are directly related to the spread of investments it is making.

From a tax perspective, investing in investment trusts is treated the same as investing in shares. That is dividends are subject to income tax.

Government Gilts

Government backed stock, known as 'Gilts' are loans made to the Government by in effect the investors. Much of the national debt is comprised of Government Gilts, so when the Government needs to 'borrow' more, it simply issues a new Gilt.

Gilts provide income derived from interest payments and a final redemption. Inflation erodes away at the true value of the Gilts redemption, whilst interest rates will make the Gilts income appear more or less attractive. Broadly speaking when interest rates rise the value of the Gilt will fall and vice versa. Many professional investors and fund managers invest part of their portfolio in Gilts because Gilts can help them to spread risk and/or provide income.

Corporate Bonds

Corporate Bonds are similar to Gilts, and work in much  the same way, however  Corporate Bonds, as the name suggests, are issued by multinational companies as opposed to Governments. They do this as a cheaper form of borrowing than a bank loan and often offer better returns than Government Gilts. They have to because the risk of a corporate going bankrupt, even a multinational one, is greater than the risk of a Government being unable to repay  its debt.

Corporate Bonds are usually invested in by fund managers and other 'professionals' and as per Gilts, they usually do this to produce income and/or spread risk.