Investment trusts are the United Kingdoms smallest route to collective investment. If we totaled up all the investment trusts in the UK today then they would constitute only a tiny amount when compared to unit trusts. An example of this is that managers run a portfolio of shares and other types of investment on behalf of individual investors.
Investment trusts are businesses whose sole purpose is to invest in other business entities. This means that whatever the investment trusts shares are valued at depends exclusively on what the stock market decides it is. On some occasions this may be more but in most typical cases is less than the value highlighted in the manager’s portfolio.
There are many features of an investment trust that may be seen as beneficial so below we will go through these. Investment trusts offer their investors a ready made portfolio which is managed by professionals who are intended for a mid to long term holding. Another bonus of using investment trusts is that there is a very low minimum investment with the lowest being fifty pounds. Also with investment trusts you will receive a wide range of choices, you could find yourself getting shares in china or shares in a chain of pubs. Many of the bigger trusts and of course the most popular trusts will fin themselves investing in all types of companies across the globe.
If we compared both the number of products on offer and the total amount invested we would find that investment trusts are very much like being the little sister of unit trusts even though investment trusts were created before unit trusts. The question you may ask is why did investment trusts even though being considerably older than unit trusts turn into being a minority route? Well the answer is all down to marketing. The biggest difference between the two entities is what happens to them from the day of their birth. In the investment world unit trusts are known as open ended as the amount of funds in the fund all depends on how much the investors withdraw and purchase. During times where investors are ploughing money in the amount under management grows and during hard times where money is being taken out the fund then shrinks and the fund managers find themselves having to sell their concerns to pay back all of their investors who are wishing to withdraw. The UK is also governed by The Financial Ombudsman who offer help and regulation to many financial sectors as well as Trust fund regulation.
Investment trusts are very different; when they are launched they have set targets which they have to achieve. When the trust achieves the target they do not care whether investors are buying or selling as they already have the funds they had targeted and can continue to invest at the rate they wish. Investment trusts do not have to market their shares after their launch for the sole reason that the investment trust world is considerably smaller than the open ended fund universe. Other Trust Funds such as the Child Trust Fund in the United Kingdom are good resources to locate additional facts on these alternative types of Trust Funds.
You can think of an investment trust as a company such as British Telecom. BT used the money from its initial share sale to invest in telecoms. Investment trusts don’t just buy telephone exchanges but actively buy shares in various other companies. If you were to invest in BT then the money raised from the sale of the shares doe not just go straight to BT but actually goes to the seller of the shares. What really divides investment trusts from unit trusts is that investors have to make a decision about the future plans of the concern. There will always be buyers and sellers, if the buyers outweigh the sellers then the market value of each share will rise and vise versa if sellers outweigh buyers.
For more indepth knowledge surroundin the Latest Financial news and market changes we recommend our readers review the Financial Times website, of which is updated daily.
