Investment Trusts

A selection of investment trust brochures

Investment Trusts are similar in purpose to, and are taxed in the same way as, unit trusts and OEICs, but there are some distinct differences in the way that they operate.

 

An investment trust is actually a public limited company (PLC) which is owned by their shareholders and each has a board of directors, independent of the fund manager, looking after shareholders’ interests.  Investors are able to attend the annual general meeting of the company. 

Unlike unit trusts and OEICs, an investment trust is a closed-ended fund, which has a fixed number of shares in issue.  This means they do not have money flowing in and out unpredictably, which helps fund managers to plan ahead.

Investment trusts have the ability to borrow additional money to invest, known as ‘gearing’.  This can enhance potential investment returns but gearing can also increase the investment risk of a trust, so whilst gearing can boost gains, it can also magnify losses.

Investment trusts are listed on the London Stock Exchange and their share price is affected by supply and demand.  This means that the share price may be different from the net asset value (NAV) of the investments held by the investment trust.  If the investor pays less than the NAV for their shares, they are buying ‘at a discount’.  If they pay more than the NAV they are buying ‘at a premium’.  Changes in the difference between the NAV and the share price can magnify the gains or losses on the investment.


Links to other types of investments

 

Important

This information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances.

Information given relating to tax legislation is based on my understanding of legislation and practice currently in force. Whilst I believe my interpretation of current law and practice to be correct in these areas, I cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.

If you are in any doubt as to whether any course of action is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser or other specialist.