Investing Basics

Unit trusts, OEICs and investment trusts: the practical differences a UK investor needs to know

Unit trusts, OEICs and investment trusts look similar on a UK platform but behave very differently. A plain English guide to all three structures.

By Ben Walker · May 16, 2026

Open the funds section of any UK investing platform and three labels appear together that look interchangeable. Unit trusts. OEICs. Investment trusts. The factsheets show the same charts, the manager bios read the same way, and the fees are quoted in the same units. From the outside, they look like variations on a theme. They are not.

Reviewed by Sarah Okafor, Editor · May 16, 2026, 21:45

In this article

The Short Version

OEICs and investment trusts are the two structures most UK retail investors will actually meet today. Unit trusts are the older format that OEICs largely replaced.
OEICs are open-ended companies. The fund grows or shrinks with demand, and shares price once a day at the value of what the fund owns.
Investment trusts are listed companies. Their shares trade on the stock market and can sit at a discount or premium to the underlying value.
OEICs and investment trusts also differ on borrowing and dividends. Investment trusts can borrow to invest and can hold back income to smooth payouts.
Check the Key Investor Information Document. It tells you in the first paragraph which structure you are buying.

What a unit trust actually is

A unit trust is exactly what the name suggests. It is a trust, set up under a trust deed, with a separate trustee whose job is to hold the assets on behalf of the unit holders. The fund manager runs the portfolio. The trustee, usually a major UK bank, holds custody and acts as the ringfence between the manager and your money. When you invest, the manager creates new units. When you sell, units are cancelled. The trust is open-ended, which means the size of the fund expands or contracts with demand. There is no fixed pool.

The thing that historically defined the unit trust was dual pricing. The fund had an offer price, which is what you paid to buy, and a bid price, which is what you received when you sold. The gap between them, the bid-offer spread, was real money lost on day one. By the mid-2000s, most retail unit trusts had moved to single pricing or converted to OEICs entirely. A handful of legacy structures still exist, but the unit trust as the dominant retail format is largely a story from the 1980s and 1990s. The Investment Association still keeps the official classifications for both formats.

The OEIC: the modern UK retail fund

An OEIC, pronounced “oik”, stands for Open-Ended Investment Company. It does what a unit trust does, but it is structured as a company rather than a trust. The framework came in under the Open-Ended Investment Companies Regulations 2001. Instead of a trustee you have a Depositary, which serves the same role as guardian of the assets. Instead of a manager named in a trust deed you have an Authorised Corporate Director, the ACD, which sits in much the same chair.

The practical difference at the customer end is pricing. OEICs are single-priced. There is one valuation per dealing day, usually struck at noon, and that is the price at which you buy and the price at which you sell. The bid-offer gap inside the structure has gone. If there is a charge to enter or leave the fund it appears separately as an initial charge or a dilution levy, not buried in the price. The total cost is easier to see.

The OEIC is now the dominant retail fund structure in the UK. Every major name a beginner is likely to meet sits in this format. Vanguard’s LifeStrategy range. The Fundsmith Equity Fund. The Hargreaves Lansdown Multi-Manager funds. The Lindsell Train UK Equity Fund. If your platform lists a fund with the word “Fund” in the name and no ticker symbol, it is almost certainly an OEIC. This is why most comparisons of OEICs and investment trusts start here.

The catch in any open-ended structure

Both unit trusts and OEICs are open-ended, which has a consequence worth understanding. When investors pile in, the fund grows. When they pile out, the manager has to sell holdings to fund redemptions, even if the manager would rather not. In a normal market this is invisible. In a stressed market it becomes the main story.

The Woodford episode in 2019 was the most prominent UK example. Investors wanted out, the underlying holdings were illiquid, and the structure could not square the two. The fund was suspended, then wound up. The lesson was not that open-ended funds are unsafe. The lesson was that an open-ended structure and illiquid underlying assets do not sit comfortably together. For mainstream funds holding large, listed equities, this is a non-issue. For funds holding property, unlisted companies, or thinly traded shares, it is a structural weakness worth knowing about. It is also one of the clearest reasons OEICs and investment trusts can behave very differently in a panic.

The investment trust: a listed company in disguise

An investment trust is built to avoid that problem. Despite the name, it is not a trust in the legal sense. It is a company, listed on the London Stock Exchange, that exists to hold investments. The size of the company is fixed within whatever capital structure the board has set, with new shares issued only occasionally. Investors do not buy and sell units from the manager. They buy and sell shares from each other on the open market. The manager runs the portfolio. The board, made up of non-executive directors, oversees the manager. The Association of Investment Companies tracks the sector.

This closed-ended structure has two large consequences. The first is that the manager never has to be a forced seller. Money invested today stays in the fund for the duration of the company’s life. If the manager wants to hold an illiquid Japanese small cap or a private equity stake, the structure can support it. The second is that the share price and the value of the underlying holdings can drift apart. This is the single biggest behavioural difference between OEICs and investment trusts on a day-to-day basis.

Discount, premium and what they actually mean

The value of the holdings per share is called the Net Asset Value, the NAV. The share price is whatever the market decides on the day. When sentiment is poor the shares trade at a discount to NAV. When sentiment is hot they trade at a premium. Discounts of ten to fifteen percent across the AIC sector are not unusual when markets are nervous, and individual trusts can sit much wider.

A trust on a fifteen percent discount is offering ninety pence of underlying assets for eighty-five pence of share price. That is not a bargain by itself. The discount might be a fair reflection of an unsuitable mandate, a poor manager, or a sector simply out of fashion. But the discount is a real thing to understand, and it does not exist in an open-ended fund at all. A premium of five percent means the opposite. You are paying one pound and five pence for one pound of underlying assets, on the assumption that someone else will pay more later. When investors compare OEICs and investment trusts, this is the moving part that does not exist on the OEIC side.

Gearing, dividend reserves and the real differences

Investment trusts can also borrow money to invest, which is called gearing. A trust that is ten percent geared has invested an extra ten pence on every pound of capital. In rising markets gearing amplifies returns. In falling markets it amplifies losses. Open-ended funds are not generally permitted to gear in the same way. This is one reason OEICs and investment trusts can diverge over long bull runs, and one reason trusts often fall harder when markets correct.

The income side also differs. Open-ended funds must distribute substantially all of the income they receive in any given year. Investment trusts can hold up to fifteen percent of annual income in reserve, smoothing dividend payments across good years and bad. This is why the AIC’s “dividend hero” list contains trusts with fifty or more consecutive years of dividend increases. The structure makes it possible. City of London Investment Trust and Bankers Investment Trust frequently appear on that list, used here as illustrative examples of what the structure allows rather than as recommendations. These structural rules are the heart of why OEICs and investment trusts pay income differently.

A worked example: same manager, two structures

Imagine two funds run by the same manager, with the same global equity strategy and identical underlying holdings. One is an OEIC. The other is an investment trust. You invest £10,000 in each on the same morning. The OEIC prices at noon and you receive £10,000 of units at the day’s NAV. The investment trust shares are quoted at a five percent discount to NAV, so your £10,000 buys you the equivalent of £10,526 of underlying assets. So far, the trust looks like the better deal.

A year later, the underlying portfolio has risen ten percent. Both funds hold £11,000 of assets per starting pound. The OEIC reflects this and your holding is worth £11,000. But sentiment in the trust sector has soured, and the discount has widened to twelve percent. Your trust shares now sit at twelve percent below NAV, giving them a market value of around £9,680.

The trust manager has not done anything wrong. The portfolio performed exactly as the OEIC’s portfolio did. The discount widened because of how the market felt about the sector, not how it felt about your specific trust. The reverse can also happen. A narrowing discount in a rising market can deliver returns above the underlying portfolio’s gain. This is the central trade-off between OEICs and investment trusts. The open-ended fund tracks the underlying portfolio cleanly. The closed-ended trust has an additional moving part that can work for you or against you.

What This Means For You

Before you put money to work, know which structure you are buying. OEICs and investment trusts can hold near-identical portfolios and still behave differently in your account because of pricing, gearing and discount mechanics. Look at the product page on your platform, read the Key Investor Information Document, and check whether the price you see is a NAV or a market price.

If you want the cleanest possible link between fund value and portfolio value, an OEIC delivers that. If you are willing to accept share-price wobble in exchange for closed-ended advantages like gearing and dividend smoothing, an investment trust can suit. Many UK investors hold both. The point is to make that decision deliberately rather than by accident, and to understand that OEICs and investment trusts are not interchangeable wrappers around the same idea.

In Plain English

Unit trusts and OEICs are open-ended funds where the price tracks what the fund owns and the size of the pool changes with demand. Investment trusts are listed companies that hold investments, and their share price can drift above or below the value of what they own. OEICs and investment trusts often look similar on a platform listing, but the way they price, borrow and pay income is different in ways that matter once you have actually bought.