Investment Law Essay Example | Topics and Well Written Essays - 2500 words

Investment Law - Essay Example Unit trusts and OEICs share some common benefits such as diversification, simplicity, and income and growth potential (Jorion, 2005). However, OEICs outweigh unit trusts in terms of benefits that they offer. The key area of distinction is the pricing structure of an OEIC which is more straightforward and transparent. Moreover, OEIC has a more flexible structure in that it can entail a variety of sub-funds that offer different investment objectives. Adding new sub-funds and creating share classes is not only easy in the case of an OEIC but also inexpensive (Jorion, 2005). The paper also discusses the legal structures of both the investment vehicles and concludes that unit trusts are legally more complex than OEICs. However, the tax treatment for both investments is similar. A unit trust is a fund of stock market investments divided into equal portions called units. Unit trusts are open-ended collective investments. A unit trust is open-ended because the number of units in each trust is determined according to supply and demand factors. A unit trust is collective because it pools money from many different investors which is then looked after by a professional investment manager. Unit trust funds allow units to be created when people invest and units to be cancelled when individual investors cash in their investment. The price of the unit trust reflects the value of investments in the fund, called the net asset value, plus charges calculated within the spread. Each day the total assets of the fund are valued. The total value is divided by the number of units that are issued and the unit price is set for that day. However, the administration and charges are deducted before determining the value of the investment (www.chartwell-investment.co.uk). Unit trusts are available in different dimensions such as those that concentrate across a geographical area, a specialized sector of industry, or a specific type of stock. For example, an investor can choose a fund specializing in UK companies, or one that concentrates its investments in the Far East. Unit trusts are authorized and regulated by the Financial Services Authority (FSA). Benefits Diversification - Investment in a unit trust can limit risk by spreading your investment and pooling your money with other investors to achieve a much wider investment spread. This means that you do not have all your eggs in one basket rather your investment will be diversified across a range of investment asset classes. Simplicity - Investment in a unit trust is considered simple as compared to the alternative of investing directly in a diverse selection of shares and bonds which would demand quite a lot of research otherwise. Income and Growth Potential - Designed as a medium to long term investment vehicle, unit trusts can cater to the needs of investors with varying objectives, namely, income and growth. Unit trusts are popular investment vehicles for both capital growth as well as income, however, it must be noted that these investments are subject to risk in the short-term and, therefore, are recommended for medium to long-term investment horizon. Professional Fund Management - Unit trusts are handled by professional fund managers who ensure that the fund is appropriately allocated to asset classes as per the objectives of the investors. Pricing Structure Unit trusts have a "bid/offer spread", that is the buying