Open Ended Investment Company - OEIC

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Definition: Open Ended Investment Company - OEIC

A popular way to invest in stocks is by the formation of Open Ended Investment Companies (OEICs). These are special type of companies or funds which can invest into other companies and have the capability to constantly vary their investment criteria as well as their fund size.

These companies are formed under the Open Ended Investment Company regulation of 2001 in UK. OEICs generally invest in equities, fixed –interest investments and properties as well. The companies share are majorly traded in London Stock Exchange (LSE) and price is determined by the value of underlying assets that the fund holds.

The OEICs in many occasion acts as the umbrella scheme with various sub-funds with their own agenda. For example an OEIC can hold a sub fund which invest in income equity while another sub fund invests in smaller companies. This arrangement can yield some cost saving benefit to the fund manager.

Moreover such funds are open-ended in nature meaning the distribution of the funds in shares whose variation in price is directly proportional to the variation in the net asset value of the fund. Thus whenever new shares are purchased it is taken care that the investment match current share prices and whenever shares are sold the asset matches with prevailing share price. In such arrangement there is no demand and supply for shares created and in each case it always reflects the actual value of the underlying asset.



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