Pick the right OEIC
Picking the right OEIC for you depends on a number of factors, including:
Risk: How much risk are you willing to take with your investment? If you are risk adverse, look for OEICs that invest in less volatile markets, for example bonds or blue chip shares.
Sector: Look at where an OEIC will invest your money. Is this an area you have knowledge of? Is this a sector that is likely to grow in the future or struggle?
Income or growth: What do you want from your investment? You can choose to receive regular dividends or reinvest your profits to maximise growth.
Lump sum or monthly investment: How do you plan to invest into an OEIC? You could choose between making a lump sum payment or monthly deposits, whichever suits your needs.
Previous performance: How has an OEIC performed in the past? Although you should never use past performance as an indicator of future returns, it will show if the fund has been successful previously.
Try to find an OEIC that most closely matches your needs. Remember that there is no guarantee your investment will increase and you may not get back the full amount you invested.
How to invest in an OEIC
There are three ways you can buy shares in OEICs:
Directly through a management company that offers the fund (e.g. Scottish Widows, Fidelity etc)
Through an independent financial adviser (IFA)
Through an online share dealing service or stockbroker
Invest in an OEIC through a management company by:
Open an account or registering with them (you may need to complete an application form)
Choose an OEIC you wish to invest in
Invest a lump sum, set up regular payments or both
You may need to pay an entry fee of around 3% - 5%, and an Annual Management Charge of between 1% and 2%.
Not all managers will accept direct investments so you will need to seek advice from a financial adviser instead.
An independent financial adviser (IFA) can help you choose which funds to invest in and will buy shares on your behalf.
You will need to pay for their services
This is a similar process as investing directly through a management company. You will need to sign up and open an account, deposit money into the account and then choose a fund to invest in.
The fees are typically lower than investing direct. You may be charged administration fees based on the total value of the OEIC, and an automatic reinvestment of income charge of around 1%.
Use your ISA allowance
Using your ISA allowance to invest in an OEIC means your profits will not be subject to Income or Capital Gains Tax. You will be given the option of investing into an OEIC using your ISA allowance.
The ISA allowance for the tax year 2017/18 is £20,000, which means you could invest this amount into an OEIC tax free.
You will be able to view the share price of your OEIC through the fund manager's website, or the online service you invested through.
This should show you the price within the last day, and include charts of its performance over time.
If you have invested through an IFA, you can contact them for an update on how your OEIC is performing.
Selling your OEIC shares
How you sell your shares will depend on how you invested.
If you bought your shares online either directly or through an online service should be able to log onto your account and sell your shares at their current price.
If you invested through an IFA, you will need to contact them to arrange the sale.
What will you be charged?
You may be charged an exit fee however few fund managers will charge this. If you have invested through an online stockbroker service check their fees for selling shares.
Any profit you make when you sell will be subject to income and Capital Gains Tax, unless you have invested through an investment ISA. You can calculate you Capital Gains Tax bill using this calculator.
To find out what tax you could be charged go to the GOV.UK website.