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What is an Open Ended Investment Company (OEIC)? : Meaning

An open-ended investment company, in short, is known as OEIC, which is pronounced as 'oik' (/ɔɪk/).

An open-ended investment company is also sometimes known as an "investment company with variable capital" (ICVC).

OEICs were developed to be similar to European SICAVs (société d'investissement à capital variable) and open-ended mutual fund in the United States.

What is an OEIC?

An OEIC is a collective investment vehicle established as a company and regulated by the Financial Conduct Authority (FCA) in the United Kingdom.

Only authorised persons resident or incorporated in the UK can promote participation in OEICs.

An OEIC is designed to allow individual and institutional investors to invest in a well-diversified and a professionally managed portfolio of pooled investor funds that invests in different equities, bonds, and other securities, in a relatively cost-effective and tax-efficient manner.

Here, investors can freely purchase and sell shares of the OEIC and the value of the shares owned reflects the net asset value of the underlying assets.

Investors own shares in the OEIC and the OEIC continually issues and redeem shares according to investor demand.

Example: J.P.Morgan OEIC Fund Range offers an extensive range of UK-domiciled OEIC funds, providing UK investors with a diverse choice of growth and income opportunities - across asset classes, regions and sectors.


Definition of Open Ended Investment Company

An “open-ended investment company” is defined in Section 236 of the Financial Services and Markets Act, 2000. An Act of Parliament of the United Kingdom (UK).

The definition states—

An “open-ended investment company” means a Open-ended collective investment scheme which satisfies both the property condition and the investment condition.

The property condition is that the property belongs beneficially to, and is managed by or on behalf of, a body corporate (“BC”) having as its purpose the investment of its funds with the aim of—
 (a) spreading investment risk; and
 (b) giving its members the benefit of the results of the management of those funds by or on behalf of that body.

The investment condition is that, in relation to BC, a reasonable investor would, if he were to participate in the scheme—
 (a) expect that he would be able to realize, within a period appearing to him to be reasonable, his investment in the scheme (represented, at any given time, by the value of shares in, or securities of, BC held by him as a participant in the scheme); and
 (b) be satisfied that his investment would be realized on a basis calculated wholly or mainly by reference to the value of property in respect of which the scheme makes arrangements.

In determining whether the investment condition is satisfied, no account is to be taken of any actual or potential redemption or repurchase of shares or securities under—
(a) Chapters 3 to 7 of Part 18 of the Companies Act 2006;
(c) corresponding provisions in force in another EEA State; or
(d) provisions in force in a country or territory other than an EEA state which the Treasury have, by order, designated as corresponding provisions.

The Treasury may by order amend the definition of “an open-ended investment company” for the purposes of this Part.


Taxation

An open-ended investment company must either distribute or accumulate the whole of its distributable income for a particular distribution period, either as dividend income or as interest.

OEICs are exempt from UK tax on its capital gains. Though they will have to pay 20% tax on their income; however, onward payments to investors are made with this 20% being netted off as basic rate tax relief.

OEICs are subject to stamp duty reserve tax of 0.5% and this also applies to most dealings in the shares of the UK OEIC.

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