When building a diversified investment portfolio, understanding different investment structures is crucial. Unit Trusts, Open-Ended Investment Companies (OEICs), and Special Purpose Acquisition Companies (SPACs) each offer unique ways to pool investor money and access various markets.
This guide explains how Unit Trusts, Open-Ended Investment Companies (OEICs), and Special Purpose Acquisition Companies (SPACs) work. It outlines their key differences and similarities and explains how developing a better understanding could influence your investment decisions.
What Are Unit Trusts and How Do They Work?
Unit trusts represent one of the oldest forms of
When you invest in a unit trust, you purchase “units” that represent your share of the fund’s total value. A professional fund manager makes investment decisions on behalf of all the investors, selecting securities that align with the fund’s stated objectives.
Tip: The value of your units rises or falls based on the performance of the underlying investments.
Unit trusts operate under a trust structure, with a Trustee overseeing the fund to ensure that it is managed according to its rules. This provides an additional layer of protection for investors.
The fund creates or cancels units based on investor demand – when more people want to invest, new units are created; when investors sell, units are cancelled.
Understanding OEICs
Moving to a more modern structure, OEICs have become increasingly popular since their introduction to the UK market in 1997. Like unit trusts, OEICs pool investor money to create a diversified portfolio, but they operate as companies rather than trusts.
When you invest in an OEIC, you buy shares (not units) in the investment company. These shares represent your proportional ownership of the fund’s assets. The OEIC structure can offer greater flexibility in how funds can be organised, allowing for multiple sub-funds under a single umbrella company. This means investors can easily switch between different investment strategies within the same OEIC structure.
Tip: When considering costs, the total expense ratio (TER) or ongoing charges figure (OCF) provide a good overview.
OEICs use a single pricing system, meaning you buy and sell shares at the same price (plus or minus any charges). This transparency makes it easier for investors to understand the exact value of their investment at any given time. Professional fund managers handle the day-to-day investment decisions, similar to unit trusts, but the corporate structure allows for more streamlined operations and potentially lower costs.
The Key Differences Between Unit Trusts and OEICs
While unit trusts and OEICs serve similar purposes, understanding their differences helps investors to make better-informed choices. The distinction between these two structures has become less pronounced over time, but several key differences remain.
| Factor | Unit Trusts | OEICs |
|---|---|---|
| Legal Structure | Operate under trust law with a Trustee and manager. | Function as limited companies with a Board of Directors and comply with company law. |
| Ownership | Because of the trust structure, investors do not technically own the underlying assets. | Investors have a legal claim to underlying assets. |
| Pricing mechanism | Use dual pricing (bid and offer prices), creating a spread between buying and selling prices | Use single pricing, making transactions more transparent |
It is also worth considering the ways that unit trusts and OEICs are similar:
- Both are open-ended investment vehicles where the value of an investor’s holding is determined by the net asset value (NAV) of the fund’s investment portfolio.
- With both vehicles, you can generally choose to have dividends paid to you as income or reinvested.
- Investment mandates can give managers freedom to invest in a wide range of asset classes, geographical regions and sectors.
- Both are professionally managed making them suitable for investors who lack the time or expertise to manage individual securities.
Which Investment Structure Could Fit Into Your Portfolio?
Understanding how these structures could potentially fit into your portfolio requires considering a number of factors including: cost, your investment goals, risk tolerance, and the importance of being able to access your funds should you need to – liquidity.
For many investors, the choice between unit trusts and OEICs often comes down to availability and cost. Many fund management companies have converted their unit trusts to OEICs due to operational efficiencies. It’s also important to consider factors such as minimum investment amounts, fee structures, and the fund manager’s track record when selecting between options.
These structural differences matter because they determine how your money is managed, what protections you have, and how easily you can access your investments. Understanding these differences may help you to align your investment choices with your financial goals and risk appetite.
The table below summarises the factors investors might want to consider when establishing whether an actively managed fund, such as an unit trust or OEIC might be appropriate for their investment plan.
| Active Fund Management |
- Pooled investments offer diversification.
- Managed by professional investors. Potential for individual investors to benefit from a manager’s experience and to adopt a more “hands-off” approach to investing.
- Regulated by financial authorities.
- Accessibility – relatively low minimum balance requirements.
- Potentially eligible for tax-efficient investment schemes.
- Market risk – the chance that the fund may decline in value.
- Fees are relatively high due to the funds being actively managed and those charges are typically ongoing.
- Valuations and dealing are typically daily, not intraday.
- “Cash drag” – funds hold a portion of capital as cash to be prepared to meet redemption requests, rather than investing it in the market.
- Manager risk – the risk that the fund manager makes bad calls.
What Is a SPAC?
SPACs represent a unique way for companies to go public. Also known as “blank cheque companies,” SPACs raise money through an IPO with the sole purpose of acquiring another company.
SPACs gained significant popularity between 2020 and 2021, offering an alternative route for private companies to access public markets. When you invest in a SPAC, you’re essentially trusting the management team to find and acquire a suitable target company within a specified time frame, typically two years.
With a SPAC, your investment sits in a trust account earning interest until a deal is announced. Once a target is identified, shareholders vote on whether to approve the acquisition or redeem their shares for the initial investment plus interest.
There are features of SPACs that constitute both opportunities and risks.
- Investors can access pre-IPO companies
- Potential to benefit from experienced management teams’ deal-making expertise
- Lower marketing costs than with traditional IPOs with potential for cost-savings to be passed to investors
- Uncertainty about the eventual target company
- Potential conflicts of interest
- Lack of diversification, SPACs concentrate risk in a single future acquisition
Before investing in a SPAC, research the management team’s track record, redemption rights and time line for finding a target company.
Final Thoughts
Although unit trusts, OEICs and SPACs are all forms of pooled investments, there are distinct differences in terms of how they operate and what they offer investors. Knowing those differences will enable you to establish which of their respective advantages and disadvantages would apply to you.
It might be that the convenience of unit trusts may suit your busy lifestyle, or that the cost structure of OEICs makes them a good fit for your portfolio. Compared to the other funds, SPACs can be seen as more of a “wild card” option, but not necessarily one to be dismissed outright. Especially if your portfolio is already well-balanced and you are looking to allocate some of your capital to strategies involving higher risk-return.
Visit the eToro Academy to discover ways to incorporate a diverse range of instruments in your portfolio.
FAQs
- What is the minimum investment for unit trusts and OEICs?
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Minimum investments vary by provider but typically range from $25-$500 for regular monthly savings or $500-$1,000 for lump sum investments. Some platforms offer lower minimums which break down the barriers to starting investing.
- Are SPACs suitable for beginner investors?
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SPACs carry higher risks than diversified funds like unit trusts or OEICs. They’re generally more suitable for experienced investors who understand merger dynamics and can evaluate management teams.
- How are unit trusts and OEICs taxed in the UK?
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Both are subject to capital gains tax on profits when you sell, and income tax on distributions. Holdings within an ISA or pension wrapper can provide tax advantages.
- How often should I check the performance of my unit trust?
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New technologies such as apps have made it easier to access reports detailing the performance of your unit trust and while some investors might take comfort from regular checks, decisions on withdrawals or additional investments would typically be taken on an annual basis. This is because mutual trusts typically invest in a manner which suits long-term investors or those planning for their retirement.
- How large is the SPAC market?
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Experts believe that 2026 could be the second-largest year in SPAC history with up to 200 deals potentially coming through the pipeline. The resurgence from a 2022–2024 slump began in 2025 when 144 SPAC IPOs raised approximately $30.4 billion. The trend is being driven by a need for liquidity from private equity, a strong pipeline of AI-related companies, and increased, yet more disciplined, participation from top-tier sponsors.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
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