Both unit trusts and OEICs are open-ended. A unit trust is essentially a big pool of money, divided into a number of units of equal size. How many units you have will depend on how much you invest, and the unit price on the day your money goes in.

The unit trust is able to create units to meet demand, or cancel them to cover redemptions, or sell units to new investors that former investors have sold out of, so the price of units is still, to some extent, affected by supply and demand. However, the price of unit trusts is linked directly to the asset value.

OEICs

The open-ended investment company (OEIC) like a unit trust is open-ended, but like an investment trust, it is structured as a company. While investors in an OEIC buy 'shares' rather than units, these are unlike ordinary company shares as the number in issue can vary from day to day.

Where OEICs differ from unit trusts is in their pricing. When you buy units in a unit trust, you buy them at the 'offer price'. When you want to sell them, however, the manager will buy them back at the 'bid price', which is lower - in many cases by up to 6 per cent. So unless your units have risen in value sufficiently to offset this bid/offer spread, you will lose money on the deal.

OEICs avoid this problem by using a 'single pricing' system - what you get is what you pay for. Charges are levied separately, making it easier to see how much you have invested and how much you have paid for the privilege

Both types of fund can invest in shares ('equities'), in fixed interest securities ('bonds'); in property and even in cash deposits.

Many funds invest in a mixture of asset classes, such as low-risk 'managed' funds which are run along similar lines to a pension fund. They may invest mainly or entirely in the UK, in Europe or North America, or farther afield, and there are growing number of 'themed' funds investing in areas like technology, telecoms or the internet. Many funds invest globally.

Unit trusts and OEICs can be held within an ISA.

The Investment Management Association have more information on unit trusts and OEICs.

Find out how your unit trusts and OEICs are performing.