Investment Trusts

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.

An Investment Trust is a company that has been set up to invest in the shares of other companies. By buying shares in the investment company, the investor is in effect spreading the risk that would normally by associated with a single share investment because the value of the Investment Company's shares are directly related to the spread of investments it is making.

The share price of the Investment trust should be the value of the underlying holdings called the Net Asset Value (NAV) but the share price can often be trading at a discount (or premium) to the NAV.

From a tax perspective investing in an investment trust is treated the same as investing in shares.

Unlike Unit Trusts and OEICs, an Investment Trust is a 'closed ended' investment vehicle where regardless of the number of investors the number of shares does not change. As such, although the share price of an Investment Trust is to an extent related to the value of the investments in the fund, it is ultimately dictated by supply and demand.  The value of the shares will therefore depend on the number of investors looking to buy or sell the shares and consequently Investment Trusts trade at either a discount or premium to the value of the assets it holds.

As a company, Investment Trusts have the ability to borrow money which can then be used to buy further investments.  Whilst this can have the positive effect of boosting returns if investments perform well, losses can be exaggerated if the investments perform poorly.

Investment Trusts frequently issue different types (classes) of shares.  The different classes of shares will suit different investors dependent on the investors attitude to risk and their need for income or growth.  

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