They may have to be cancelled and shares sold when unit holders decide

They may have to be cancelled and shares sold when unit holders decide to sell, which can lead to further price falls.
Investment trusts are different They are themselves listed on the stock market. Unlike unit trusts they can invest in private, unquoted companies and property. They can also borrow money if the managers think it can be invested for a greater return than the interest they pay.Investment trusts have only a limited number of shares in issue Price is determined by investor demand in the market. It is quite often below the net asset value, a discount to the underlying worth of each unit. If there is great demand for the shares, they can be at a premium. The average investment trust is on a 14 per cent discount.Many of the oldest investment trusts have lower charges than unit trusts. Annual management charges can be below 0.5 per cent, which compares with annual fees of 1 per cent or more on many unit trusts.Because of their gearing and volatile share prices, investment trusts tend be riskier than unit trusts and of more appeal to sophisticated investors.

But they have proved their worth over the long term, 10 years or more. Results show they have on average outperformed unit trusts.One of the largest stables is run by Fleming Investment Trust Management, which manages more than pounds 5bn in 19 trusts. But the oldest form of collective investment has become more popular. The first trusts were set up over a century ago by Scottish investors. This makes them much older than unit trusts, which have been around more or less in their present form for fewer than 70 years. For while unit trusts are well-established in this country, they are unknown in the rest of the world.So, at some stage in the future, we could see a pan-European Oeic with shares available in sterling, marks and lira, so that investors could buy in their own currency or, as a hedge, in another.The other big difference is that Oeics can be organised as a series of sub funds under a single umbrella and it will be easy for investors to switch between them if their investment needs change or they are unhappy with the performance of a particular sector.. Retired teachers and other public employees all over the US, for example, depend on fund managers in London and Edinburgh to keep their pensions growing.

And of course analysts from Britain can be found keeping an eagle eye on company performance everywhere from Argentina to Uzbekhistan.But at a retail level, the industry remains largely confined to the UK. The difference lies in the charging structure, with the B shares having a lower initial charge and a higher annual charge.Although it does not apply to either of the Oeics announced so far, it will even be possible for different share classes to be denominated in different currencies. And that is the key to understanding why the new product is being introduced: it is an attempt to help the UK fund management industry export its expertise.Pension funds and large corporations from all over the world flock here for investment advice. Just as a trading company can issue ordinary and preference shares, so an Oeic can issue different classes of share.So, for example, with the new GAM fund, there are A shares, sold directly to investors, and B shares, sold only through intermediaries. “Customers can relate to it, and they will see that there is no kind of hidden charge.

It’s going to be good for everyone, the investor and the industry.”But there are some other important differences between old and new which, long term, could have a direct impact on investors.Oeics are companies, and the investment in them will be shares, rather than units. The tide looks unstoppable and yet, according to some investment insiders, more than half the 1,600 different unit trusts could well disappear within the next five years. They will be replaced by a new kind of fund, known as an open-ended investment company or Oeic, pronounced “oik”.
The first Oeic opened for business at the end of last month, and plans for the next were announced last week, the climax to some two years of toing and froing between the fund management industry, the Treasury and the Inland Revenue,The honour of being first past the post to launch one of the new funds was taken by Global Asset Management, (GAM) with a specialist fund, which invests in Japan, while the second to go on sale will be an emerging markets fund from the Templeton investment group.Although there is not likely to be a flood of new launches over the coming months, many unit trusts are expected to convert to the new structure by the end of the decade, taking advantage of a tax concession which means that, for conversions before that date, there will be no tax liability when the assets of the old unit trust are transferred to the new.What will all this mean for the average private investor? At first, not a lot, according to Dougie Adams, Templeton’s European business planning director.”The most visible difference will be that Oeics will have just one price, rather than the dual bid/offer pricing structure which we are used to in unit trusts,” he said, unveiling details of the new Templeton emerging markets fund. So if you are due the free shares and have the money to buy more at a discount, you almost certainly should go for them – albeit not with your life’s savings.

And if you haven’t sent off your application this is your last chance: the offer closes on 10 June.. Investments in unit trusts now amount to more than pounds 143bn, or roughly pounds 2,500 for every man, woman and child in the entire country – a three-fold increase in less than seven years. However, if you don’t have anything more in mind than keeping the cash proceeds on deposit then over the longer term you should be better off sticking with the shares. And all the signs are that Norwich Union, the next windfall, will join the stock market on Monday week at a bonanza price. The latest base-rate rise was shrugged off by the stock market on Friday but further increases may be more damaging. Given that the stock market already looks precariously high, and shares in financial companies are arguably the most over-inflated, windfall recipients could yet be disappointed by tumbles in the value of their handouts.The party may well continue a while, however. People whose shares are held in the Halifax Shareholder Account can sell for free through the Halifax if they return the relevant form by Wednesday.