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What is Open end / Closed end Investment Companies?

Article Summary:

  1. What is Open Ended Investment Companies (OEICs)

  2. What is Closed-End Investment Companies

  3. Which type of investment instrument is for you?

What is OEICs?

OEICs are companies that collect investor’s fund and employ fund managers to invest on investors behalf. When an investor buys a share of an OEIC fund, the investor has the right to claim his share anytime. OEICs offers opportunities for commercial investors to invest without expertise in finance. OEICs then charge investors annual fees and, or, commission fees based on each company’s cost structure. OEICs are great for commercial investors who do not want to spend time managing their portfolio while still wanting to invest.

It is known as “open-ended” because they increase the number of shares in the fund to meet investor demands. Likewise, when an investor claims a share, one share would be cancelled from the total fund shares. By being “open-ended,” the price of a share will always be the same.

So what do you think is a closed-end investment company?

You’re right! It is companies that do not change their number of shares in a fund, which means the price will fluctuate based on investor demand. An example of this would be Apple Inc, where there is a fixed number of shares issued; hence, the share price of Apple Inc changes day to day.

Which type of investment is for you?

If you have not filled in a questionnaire that I created to determine your ideal investment type, Click Here, it gives you advice on which investment type is most suitable for you.

Depending on which investment length you are interested in, there are a lot of funds out there that may suit you. First, know that there are short term OEICs and long term OEICs, it is considered short term if it is held up to 3 years and long term is anything held over five years. Second, determine the amount of risk that you are comfortable to take and your budget. Third, research on which OEIC is more credible and lastly, invest in it.

Closed end investment companies are any companies that raise money through the stock market. Initial public offering (IPO) is a process that companies go through to become listed on stock exchanges.

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