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Unit trusts and OEICs are types of investment fund. They are known as "open-ended", because their size is not limited. Imagine that you have £10,000 invested in a unit trust with a total of £10 million of assets. If you decided to withdraw your investment, then the fund's total assets would go down to £9,990,000. However, if you decided instead to add another £10,000 to your investment, then the total assets would go up to £10,010,000. The effect of this is that if a fund suffers a large number of "redemptions" (that is, withdrawals), then it will have to sell some of its investments in order to provide the money for the investors that are pulling out. Similarly, when lots of people are adding money to a unit trust, that trust has to buy more investments in order to maintain its investment profile. How They Work You can purchase units in a unit trust or OEIC either by contacting the provider directly or through a discount broker or financial adviser. The best way is generally going to be the cheapest way. This will generally mean contacting a discount broker. Unit trust and OEIC providers generally calculate their prices once a day at around noon, in accordance with FSA regulations. This is where the main difference between unit trusts and OEICs arises. With a unit trust there are generally two prices, a "bid" price and an "offer" price. Purchases are made at the offer price and sales are made at the bid price. The reason for the names is that at the offer price, they are offering units to you and, at the bid price, they are bidding to receive units from you. The difference between the two prices incorporates the "initial charge". OEICs have only one price, with the initial charge being taken as a separate commission. How your order is turned into units is also the subject of detailed FSA regulations but, generally, they will be bought for you when the price is next set. If you make your order in the afternoon, this could therefore be the next business day. Once the transaction is completed, you will be sent a contract note. You should hang on to this. Once your money is in the trust, it is held by the fund's trustee for your benefit. Technically speaking, the trustee employs the management company to manage the fund according to its objectives. It is the responsibility of the trustee to ensure that this is done correctly. In the case of an OEIC, the trustee is called a "depositary", but the effect is basically the same. However, the funds are marketed under the name of the management company and you probably won't get to hear about who the trustee is. This doesn't really matter, since the trustee, whoever it is, has to operate in a clearly defined way according to the law. Charges There is a huge range of charges between different funds. Some will charge as much as 6% as an initial charge with ongoing management fees of 2% per annum, or sometimes even more. By contrast, some have no initial charge and ongoing fees of only 1% (or less). Generally speaking, the lower the fund's charges, the better it's performance is likely to be because less money is being removed from the fund to pay the managers. Some unit trusts and OEICs have "exit charges" whereby they take a percentage of your money when you remove it. Quite a few trusts have reduced their initial charge and replaced this with an exit charge if you remove your money within a specified period (like a few years). At any rate, before you invest in a fund, you want to be sure that you fully understand the implications of its charges. >> Looking for an ISA? Check out our ISA centre today!