Open-Ended Investment Company (OEIC): A Flexible Fund That Expands or Shrinks Based on Investor Demand

An Open-Ended Investment Company (OEIC) is a type of collective investment fund that allows investors to pool their money together to invest in a diversified portfolio of assets such as stocks, bonds, or other securities.
The fund is called open-ended because it can create new shares when investors buy in and cancel shares when investors sell out, meaning its size changes continuously based on investor demand.

In simple terms, an OEIC lets people invest together in a professionally managed fund that grows or shrinks depending on how many investors are buying or selling shares.

Core Idea

An OEIC combines money from many investors into one fund, which is managed by a professional fund manager.
The manager invests the pooled money according to the fund’s objective — for example, long-term growth, income, or balanced returns.

Because it’s open-ended, the value of each investor’s holding changes with the fund’s overall performance and the daily value of its assets (called the Net Asset Value, or NAV).
New investors can join at any time, and existing investors can redeem (sell) their shares directly to the fund.

In Simple Terms

An OEIC works like a shared investment pot — investors contribute money, professionals manage it, and everyone benefits (or loses) in proportion to their share of the pot’s total value.

Example

Suppose you invest £5,000 in an OEIC that focuses on UK equities.
Your money is combined with thousands of other investors’ funds to buy shares in companies listed on the London Stock Exchange.

If the value of those holdings rises by 10%, the value of your investment also rises by roughly 10%, minus management fees.
If other investors join, the fund issues more shares; if some withdraw, the fund cancels theirs — hence, it’s open-ended.

Real-Life Application

OEICs are one of the most popular investment structures in the UK and are similar to mutual funds in other countries.
They are used by individuals and institutions who want:

Diversification across multiple assets.

Professional management by experienced fund managers.

Liquidity, since shares can be bought or sold daily at the current NAV.

Transparency, as prices and holdings are regularly published.

OEICs are regulated by the UK Financial Conduct Authority (FCA) to ensure fairness and investor protection.

Structure

An OEIC is set up as a company with variable capital (ICVC) and usually has:

A fund manager (also called the Authorized Corporate Director, or ACD).

A depositary, who safeguards the fund’s assets.

A prospectus, which outlines the fund’s strategy, risks, and charges.
Investors become shareholders in the OEIC, owning shares that represent their proportionate interest in the fund.

Key Features

Daily pricing: The share price reflects the current value of the fund’s assets.

No fixed size: The fund can expand or contract as investors buy or sell shares.

Income or accumulation units: Investors can receive regular income or reinvest distributions.

Wide range of strategies: Equity funds, bond funds, balanced funds, and sector-specific funds are all available.

Common Misconceptions and Mistakes

“OEICs guarantee returns.” They can go up or down depending on market performance.

“They’re risk-free.” Investment risk varies based on the fund’s assets — some are conservative, others high-risk.

“OEICs are closed like investment trusts.” Unlike closed-ended funds, OEICs issue or redeem shares freely.

“You can only buy them from banks.” They’re available through fund platforms, financial advisers, and directly from providers.

Related Queries Investors Often Search For

What is an OEIC and how does it differ from a unit trust?

How are OEIC prices calculated?

Are OEICs suitable for long-term investing?

How are income and accumulation shares different?

Who regulates OEICs in the UK?

Summary

An Open-Ended Investment Company (OEIC) is a UK-based investment fund that allows investors to pool their money into a professionally managed, flexible portfolio.
The fund grows or shrinks as investors buy or sell shares, with prices updated daily to reflect the current market value of its holdings.
OEICs offer diversification, transparency, and accessibility, making them a popular choice for both beginner and experienced investors.