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Becoming Familiar with Unit Trusts and OEICs

Becoming Familiar with Unit Trusts and OEICs

Here, we talk about Unit Trusts and Open-Ended Investment Companies (OEICs) – of interest to those studying for any of the CII AF1, AF4, AF5, CF1, J10, R01, R02, R03, or R06 exams.

This article is relevant to examinable tax year 2020/21.

One of the major differences between unit trusts and OEICs is the way they can be priced.  Unit trusts can quote a bid price and an offer price whereas OEICs only have a single price.

  • The bid price is the price an investor receives if they sell the units back to the fund manager
  • The offer price is the price an investor pays to buy units from the fund manager

The difference between the prices is called the bid-offer spread and includes costs.

Unit trust managers can elect to use single pricing using the mid-market price for the underlying investments.

Usually, when we buy something we know what the price is.  Open-ended investments however are priced on a forward or on a historic basis.

  • Forward pricing – where the price is calculated at the next valuation point
  • Historic pricing – where the price is calculated at the last valuation point
Are you familiar with unit trusts and OEICs? This article explains a bit about them - useful for CII CF1, J10, R01, R02, R03, R06, AF1, AF4, and AF5 exam revision. Click To Tweet


Most fund managers use forward pricing, which means when an order is placed to buy or sell units, the investor will not know exactly what the price is until the deal is finalised.

  • If the fund is priced daily at say 1 pm, and an order is placed at 11 am, the transaction will be carried out after the fund is priced at 1 pm (at the new price).
  • If an order is transacted at say 3 pm, the investor would have to wait until the next day at 1 pm for that order to be executed (at the next day’s price).

The taxation of unit trusts and OEICs is the same in that they are both only subject to corporation tax on interest and rental income at the basic rate and there is no tax to pay on dividend income (neither pays corporation tax on capital gains made within the fund).

As far as the investor is concerned, they may receive income either in the form of interest or dividends.

  • Dividends are paid gross.
  • The first £2,000 is tax-free.
  • Anything above that is taxed at the investor’s marginal rate (7.5%, 32.5%, or 38.1%).
  • Interest is paid gross.
  • The personal savings allowance (PSA) can be used if available (although additional rate taxpayers do not get a PSA).
  • Anything above this is taxed at the investor’s marginal rate (20%, 40%, or 45%).
  • A non or basic rate taxpayer may be able to receive up to £6,000 tax-free, made up of the £5,000 starting rate band and the £1,000 PSA

You should note that whether an investor chooses accumulation units or income units, the income is always potentially taxable regardless of whether it is actually taken or reinvested.

Capital gains tax may be payable on any profits made from both a unit trust and an OEIC.

Grab the resources you need!

If you’re studying for your CII AF1 exam, and you want to feel confident on exam day, you’ll need to be prepared. Grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF1 calculation workbook taster now!

Click here to download our free calculation workbook taster for CII AF1

Alternatively, you can download taster resources for AF4, AF5, CF1, J10, R01, R02 R03, or R06 if you’re revising for any of those exams.