Advantages of Unit Trusts / OEICs

There are several major advantages provided through investing in collective investments, such as Unit Trusts and OEICs rather than individual shares. These can be summarised as follows:

• Spreading risk:

Unit trusts and OEICs can offer investors the potential to achieve greater returns than is usually possible from cash deposits, however, they do involve taking added risk. In effect some of this risk will be minimised because when an investor invests in a collective, they are effectively buying a stake in a wide range of shares. Historically stocks and share have outperformed cash over longer periods.   

• Reduced dealing costs:

Pooling money with that of other investors allows access to the expertise of professional fund managers and the cost advantages of buying in bulk. An individual investing a small amount in a wide variety of different shares could find dealing costs very high in proportion to the investment amounts.

• Less administration:

If an investor holds many shares directly, there will be a great deal of paperwork involved in buying, selling, collecting dividends, monitoring performance and so on. With a unit trust/OEIC, it is the role of the fund manager to deal with all these aspects and the investor only has one set of paperwork to consider.

• Diversification:

Unit trusts/OEICs offer the ability to pursue particular objectives or specialise in particular markets that an investor might otherwise avoid, e.g. Far Eastern funds.