Investing ones own money can bring financial security in later years, even with minimum risk, however this type of money saving usually requires that your pot so to speak remains invested, sometimes for as long as 20 years. If we take a typical pension this period can be two thirds of a working lifetime.
Unit trusts and OEICs
Definition: Unit trusts and OEICs (open-ended investment companies, a modern equivalent of unit trusts) offer the opportunity of investing collectively in a range of assets with other investors. Your money is pooled in a fund run by professional managers, who invest the capital in a wide range of assets, including equities, bonds and cash. The advantages are that is usually less risky than buying individual shares, it is simple to understand, you get professional management and there are no day-to-day decisions to make. Additionally, every fund is required by law to have a trustee called a ‘depository’ in the case of OEICs to protect investors’ interests.
The minimum investment in some of the more popular funds can be as little as £25; in others, it can be as high as £10,000. There is often a front-end, and sometimes an exit fee, which varies from group to group and fund to fund. Investors’ contributions to the fund are divided into units (shares in OEICs) in proportion to the amount they have invested. As with ordinary shares, you can sell all or some of your investment by telling the fund manager that you wish to do so. The price at which you buy a unit is called ‘the offer price’.
How to obtain: Units and shares can be purchased from banks, building societies, insurance companies, stockbrokers, specialist investment fund providers, independent financial advisers, directly from the management group and via the internet. You may be asked to complete a form stating how much you want to invest in which particular fund – and then return it to the company with your cheque. Alternatively, you may be able to deal over the telephone or internet.
For a list of unit trusts and OEICs, you can look in Financial Time. You can also contact Investment FactLine Information to obtain a guide to investing called Introducing Investment, as well as various factsheets on such topics as ISAs, ethnical investment, unit trusts and tax. Tables comparing the performance of the various funds are published in specialist magazines or on websites such as Money Management, Money Observer and What Investment. With over 2,000 funds from which to choose, it is important to get independent professional advice.
Tax: Unites and shares invested through an ISA have special advantages. Otherwise, tax treatment is identical to ordinary shares.
Assessment: An ideal method for smaller investors to buy stocks and shares: both less risky and easier. This applies especially to tracker funds, which have the added advantage that charges are normally very low. Some of the more specialist funds are also suitable for those with a significant investment portfolio.
Complaints: Complaints about unit trusts and OEICs are handled by the financial Ombudsman Service (FOS). It has the power to order awards of up to £100,000. Before approaching the FOS, you must first try to resolve the problem with the management company direct via their internal complaints procedure.