Investment Trust

Investment Trusts are another way to reduce the risk of investing by spreading your money across a number of shares, but in a slightly more indirect way to unit trusts. With an investment trust, you buy shares in a company which owns shares of other companies. The performance of that company will depend on the performance of the shares it owns.

This type of investment if known as a ‘closed ended’ investment company, because there is a fixed amount that can be invested in shares by the company – i.e. the amount they raise by selling shares to shareholders in the company. If you put money into a unit trust, the managers of the unit trust use the money to but shares, and if you take money out, they may have to sell shares to give you your money. With an investment trust, you can put money in and take it out without the company having to buy or sell shares. This means it is easier to run, and can mean very low charges.

Because you are actually buying shares in a company though, you will have to pay a commission to buy the shares, and also may lose out slightly due to the difference in the bid and offer prices on the shares. Because of these factors, an investment trust is unlikely to be a good option if you would like to investment a small amount regularly – a unit trust is more suited to regular investment. Stamp duty charges also apply to investment trusts.

Shares in investment trusts also have annual fees to be paid to cover the management of the company. These charges are normally fairly low though, especially if the investment trust is very large, benefiting from the economies of scale.