Unit trusts are pooled investment funds that let you buy a slice of a much larger portfolio of shares, bonds or other assets, run by a professional manager on your behalf. If you’re comparing them with an open ended investment company, or OEIC, the short answer is that both are open ended and priced daily on net asset value, but unit trusts price using a bid and an offer, while OEICs quote a single price. That structural difference affects what you actually pay when you buy and sell.
This guide explains how unit trusts work in practice, how they differ from an OEIC, what they cost, and how they’re taxed both inside and outside an ISA. It finishes with a straight comparison against investment trusts and ETFs, since all four sit in the same shelf of your platform and get confused with each other constantly.
How do unit trusts work?
A unit trust pools money from many investors and uses it to buy a portfolio of underlying assets, most commonly shares, bonds or a mix of both. Your money buys “units” in the trust, and the value of each unit rises and falls with the value of the assets the fund holds. The trust is governed by trust law, with the fund’s assets legally held by an independent trustee on behalf of investors, separate from the fund manager who makes the day to day investment decisions.
Because a unit trust is “open ended,” the manager can create new units whenever new money comes in, and cancel units when investors sell, rather than trading a fixed number of shares on an exchange. That’s the key difference from a closed ended fund like an investment trust, which we cover further down. Units are priced once a day, usually at a set valuation point, based on the net asset value (NAV) of everything the fund holds.
Most funds trade daily, which means you can usually buy or sell on any working day, though it’s worth knowing that funds holding illiquid assets, commercial property being the classic example, have occasionally suspended trading during periods of market stress, since the manager can’t sell buildings quickly enough to meet redemptions.
The bid-offer spread
This is the part that catches people out. Unit trusts quote two prices: the offer price, which is what you pay to buy units, and the bid price, which is what you receive when you sell them. The gap between the two, the bid-offer spread, exists to stop new or exiting investors diluting the value held by everyone else in the fund, and it’s typically in the region of 5%.
In practice, that means your investment needs to grow by roughly the size of the spread before you’re back to break-even, purely from the pricing mechanism, before any charges or market movement. Many unit trust providers have moved to single pricing over the years to simplify this, so it’s worth checking a specific fund’s pricing method rather than assuming every unit trust still uses dual pricing.
What is an OEIC (open ended investment company)?
An open ended investment company, or OEIC, does the same basic job as a unit trust, pooling investor money into a fund of underlying assets, but it’s structured differently. Where a unit trust is a trust, an OEIC is a company, governed by company law, with the fund’s assets held by an independent depositary rather than a trustee.
OEICs quote a single price per share, based on NAV, rather than a separate bid and offer. Costs of buying and selling are factored into that single price rather than shown as a spread, which most investors find easier to understand at a glance. Many older unit trusts have actually converted to OEIC structure over the years precisely because it’s simpler to run and easier for investors to follow.
An OEIC is often built with multiple “sub-funds” sitting under one company structure, for example separate UK, European and global equity sub-funds. That makes switching between a manager’s different strategies more straightforward than switching between two entirely separate unit trusts.
Unit trust vs OEIC: the comparison table
| Feature | Unit trust | OEIC |
| Legal structure | Trust (trust law) | Company (company law) |
| Pricing | Bid and offer (spread) | Single price |
| Assets held by | Trustee | Depositary |
| Sub-funds | No, separate trusts | Yes, common structure |
| Open or closed ended | Open ended | Open ended |
| Priced on | Net asset value (NAV) | Net asset value (NAV) |
| ISA eligible | Yes | Yes |
In practical terms, the choice between the two structures rarely drives an investment decision on its own. What matters far more is the underlying portfolio, the manager’s track record, and the ongoing charges, which we’ll get into next.
Charges on unit trusts and OEICs
Every fund publishes an ongoing charges figure (OCF), which covers the annual management charge plus other running costs like administration and regulatory fees. This is the number to compare across funds rather than any headline “management fee,” since it captures the full annual drag on your returns.
On top of the OCF, some funds still apply an initial charge when you invest, though these have become far less common as platforms and fund supermarkets have driven costs down. Where a unit trust has a bid-offer spread, that spread functions as an additional cost on entry and exit, on top of the OCF, which is one reason single-priced OEICs and index trackers have grown in popularity.
Your investment platform will also charge its own separate fee for holding the fund, on top of whatever the fund itself charges, so the total cost of ownership is the platform fee plus the fund’s OCF plus any dealing charges the platform applies to fund trades.
Taxation of unit trusts and OEICs
Inside an ISA
Held within a stocks and shares ISA, unit trusts and OEICs are entirely free of both income tax and capital gains tax. You can shelter up to £20,000 across all your ISAs in the 2026/27 tax year, and any dividend or interest income the fund pays out, along with any gain when you sell, sits completely outside the tax system.
Outside an ISA
Held outside an ISA, for example in a general investment account, dividend income from equity funds is taxed against your dividend allowance, which stands at £500 for 2026/27, according to GOV.UK. Above that allowance, basic rate taxpayers pay 10.75%, higher rate taxpayers pay 35.75%, and additional rate taxpayers pay 39.35%, following the two percentage point increase to the basic and higher dividend rates that took effect on 6 April 2026.
Bond funds work slightly differently: the income they distribute is generally taxed as interest rather than as a dividend, so it’s set against your personal savings allowance instead, where applicable, and taxed at your normal income tax rates above that.
When you sell units or shares at a profit, that gain is measured against your capital gains tax annual exempt amount, which is £3,000 for 2026/27, according to GOV.UK. Above that threshold, gains from funds, along with most other assets, are taxed at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers, following the rate changes at the October 2024 Budget that unified the rate previously split between residential property and other assets.
Because both allowances (dividend and CGT) have been cut sharply in recent years, holding funds inside an ISA has become considerably more valuable than it once was, particularly if you’re a regular investor building a larger portfolio over time.
How unit trusts compare with investment trusts and ETFs
This is where things get genuinely confusing, since all four sit alongside each other on most investment platforms with similar-sounding names.
Investment trusts are closed ended, meaning a fixed number of shares are issued and then traded on the London Stock Exchange, just like a company’s shares. Because the share price is set by supply and demand rather than directly by NAV, an investment trust can trade at a premium or a discount to the actual value of its underlying assets, something that never happens with an open-ended unit trust or OEIC. Buying an investment trust also means paying stamp duty of 0.5% on UK purchases, which doesn’t apply to unit trusts or OEICs.
ETFs (exchange traded funds) are also traded on an exchange throughout the day, like investment trusts, rather than priced once daily like unit trusts and OEICs. Most ETFs track an index rather than being actively managed, which tends to make their ongoing charges lower, though actively managed ETFs do exist. Like investment trusts, buying UK-domiciled ETF shares can attract stamp duty, though many popular ETFs are Irish-domiciled and structured to avoid this.
At a glance
| Type | Structure | Priced | Can trade at premium/discount | Stamp duty on purchase |
| Unit trust | Open ended (trust) | Once daily, NAV | No | No |
| OEIC | Open ended (company) | Once daily, NAV | No | No |
| Investment trust | Closed ended | Continuously, market price | Yes | Yes (0.5%) |
| ETF | Open ended, exchange traded | Continuously, market price | Rarely, small deviations | Usually (varies by domicile) |
If you want to trade during the day and are comfortable with the possibility of buying at a premium to NAV, an investment trust or ETF might suit. If you’d rather buy and sell at a single daily NAV-based price with no premium or discount risk, a unit trust or OEIC does that job.
FAQs
What is a unit trust in simple terms?
A unit trust is a pooled fund where your money, alongside other investors’ money, buys units representing a share of a larger portfolio of assets like shares or bonds, managed by a professional fund manager on your behalf. The value of your units moves with the value of the underlying assets.
How do unit trusts work?
You buy units at the offer price and can sell them back to the fund manager at the bid price, with both prices based on the fund’s net asset value at each daily pricing point. The gap between the two prices, the bid-offer spread, covers the fund’s transaction costs.
What’s the difference between a unit trust and an OEIC?
A unit trust is legally a trust with dual pricing (a bid and an offer), while an open ended investment company (OEIC) is legally a company with a single price. Both are open ended, priced daily on net asset value, and can be held in an ISA.
Are unit trusts safe?
Unit trusts aren’t risk free: the value of your units can fall as well as rise, depending on how the underlying assets perform. They’re generally considered lower risk than picking individual shares yourself, since your money is spread across many holdings, but you can still lose money, and funds holding illiquid assets have occasionally suspended trading during market stress.
Can I hold a unit trust in an ISA?
Yes. Unit trusts and OEICs are both eligible to be held within a stocks and shares ISA, where any income and gains are free of UK tax, up to the overall £20,000 ISA allowance for 2026/27.
Do unit trusts pay dividends?
Many do, if the underlying fund holds dividend-paying shares, though you can usually choose between taking that income as cash or having it automatically reinvested to buy more units. Bond funds typically distribute interest rather than dividends.
What is an open ended investment company?
An open ended investment company (OEIC) is a type of pooled fund structured as a company rather than a trust, where the manager can create or cancel shares to meet investor demand and the fund is priced once daily at a single price based on net asset value.
Are OEICs better than unit trusts?
Neither structure is inherently better; the single pricing on an OEIC is easier to follow, but the underlying portfolio, manager and charges matter far more to your actual returns than whether the fund happens to be structured as a trust or a company.
