An investment trust is a public listed company. It’s designed to generate profits for its shareholders by investing in the shares of other companies.
Here are some of the features that make them different from other investments:
Closed-ended – an investment trust has a fixed number of shares. The fund manager can invest and sell assets when they feel the time is right; not when investors join or leave a fund. It also means the underlying capital investment base is relatively stable.
Borrowing powers – investment trusts can borrow money (known as gearing) to take advantage of investment opportunities. Borrowing can increase the returns for shareholders, but if the assets fall in value, it can also increase the potential for losses.
Income – investment trusts can retain up to 15% of their income in any year. This can be used to supplement income in future years.
Competitive pricing – investment trusts usually have smaller operating costs than OEICs and SICAVs, so their charges are generally lower.
Governance – every investment trust has an independent board of directors. They’re responsible for safeguarding shareholder interests.
Shareholder rights – when you invest in an investment trust you become a shareholder in that company. This gives you the right to vote on issues such as the appointment of directors or changes to the investment policy.