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Financial Advice...
Pure and simple

Invest Protect Insure provides financial advice and planning, in plain English, to people
who want to ensure they make the right financial decisions at the right times and at the
right cost. It's simple!

Business Woman

Investment Trusts

Investment Trusts are less well known than unit trusts and OEICs, but they have many advantages. As companies, they purely exist to buy and sell shares in other companies. By putting your money in an Investment Trust, you’re effectively becoming their shareholder.

How do they work?

You, along with other investors, put your money into the Investment Trust Company. In return you become a shareholder. They will use your money to purchase shares in hundreds of other companies. If these companies do well, the Investment Trust portfolio will grow and so too should the value of your shares. It’s like playing the stock market, without the hassle of buying, monitoring performance and selling individual shares. Unlike Unit Trusts and OEICs, these are ‘close-ended’ investments.  This means that the number of shares available is fixed, enabling the fund manager to plan ahead and make better investment decisions.

How are the shares priced?

Because Investment Trusts are companies listed on the Stock Exchange, their shares are issued on the stock market. Although the actual value of the shares is determined by the investments in the fund, the price you pay for the shares will change according to supply and demand. If more people want to buy shares than sell them, then the price will rise. Similarly, it will fall if more people are trying to sell. As a shareholder, you won’t sell your share back to the trust, but to another buyer, via the stock market.

Who looks after your investment?

A fund manager within the trust.  They are tasked with selecting companies to invest in and will have an investment objective to focus on. Being listed companies, each trust has an independent board of directors. They are accountable to shareholders.

What income will you receive?

There are also different classes of shares available. Some will pay ‘income’ at regular intervals, but will not entitle you to any of the growth in the fund. Others will give you part-ownership of the fund but will not pay a regular income.

What are the risks v returns?

Like any investment in the stock market, movements in value can be larger. There are different risk options, so you can choose one you feel comfortable with. Over time, volatility in the stock market has generally smoothed out, and on past performance, the returns have outshone lower risk forms of savings and more than compensated for inflation. Realistically, they are intended to be a long-term investment aimed at people happy to stay with the investment for more than five years.

What are the costs?

Surprisingly, investment trusts are usually cheaper to buy than unit trusts. Fees will depend on whether you buy shares directly from the trust or via the stock market, but could include:
  • Dealing costs To buy shares via the stock market, you’ll need to appoint an investment adviser or stockbroker to arrange the purchase or sale of your shares. You may also incur stamp duty costs.
  • Bid-offer spread or entry charge The price that shares are bought for will generally be higher at any one time than they can be sold for. This Initial Charge won’t apply if you’re buying directly on the stock market.
  • An annual management charge The fund manager will take out a percentage of the fund amount each year to cover administrative and management fees.
Fees are always clearly published, but it’s important to cross compare and understand what’s reasonable, as they can vary widely. Remember, any charges will reduce the gains or increase the loss your fund makes.

Is there a minimum investment amount?

Terms and conditions vary for each trust. You can also invest in one or more trusts through an ISA. To find out more about Investment Trusts and whether they could be good for your income growth, speak to us today. Unit Trusts Open Ended Investment Companies Individual Saving Account (ISA) Life Assurance Based Investments   The value of investments and the income from them can fall as well as rise and past performance is not a guide to future performance.   The value of investments and the income from them can fall as well as rise and past performance is not a guide to future performance.