subject: An Overview Of Investment Trusts [print this page] There are numerous ways that you can invest money, these include savings accounts, cash ISAs and National Savings & Investments (NS&I). With the majority of these types of investments you are guaranteed to get back the money you invested plus some interest. There are, however, some investments that can make you money. Investing in an Investment Trust is one way of doing this. In basic terms, an investment trust is a way that you can invest in shares, bonds and property. It is a method of investment that is typically used in the United Kingdom. There are roughly 400 trusts in the UK and they are valued at about 50 billion in total.
Rather misleadingly, an investment trust is not a trust at all but usually takes the form of a company. An investment trust will buy and sell shares in other companies. When an investment trust is set up a certain amount of shares will be issued that investors can buy, once they do this they will become a shareholder in the company. Unlike other funds and trusts you are investing in the company itself rather than investing in a pool of shares. The concept is still fairly similar to other trusts and funds as you are still pooling your money with other investors which will allow you to spread your risk. It is also a lower risk option than buying individual shares yourself. But this doesnt mean there is no risk in the process. Shares will always fluctuate in price so investing in them will always bring a certain amount of risk.
Investment trusts are known as closed-ended investments. This is because only a fixed number of shares are issued and it is rare for a trust to issue any more, although it does occasionally happen. The upside of doing this means that the managers of the trust always have a set amount of money at their disposal. This in turn means that if customer-demand for shares in the company increases, they do not have to buy or sell to meet it. As demand for shares in the company increases, the price of your shares in it will also increase. If there is no demand then the price of your shares will lose value.
Investment trusts can be useful for those who do not want the hassle of having to buy and monitor individual shares themselves. It can also be good for those who are willing to put money into a long term investment of at least five years. This is because you will get more from your shares if you keep them as a long term investment option. It is also a suitable investment for those who are willing to accept a certain amount of risk, depending on which company you go with, and for people who understand that there is the possibility of the value of your investment going down as well as up.
The price of the shares of an investment trust depends on the value of its assets (or the shares it owns) and the demand for them. There should be a difference in the net asset value of the company and the price of its shares. If the discount between them is wide you are likely to lose money, but if there is a narrow discount then you are more likely to make money. Looking at the size of a discount can tell you how popular an investment trust is and whether it is a good or bad time to sell your shares in the company. The net asset value per share is calculated by dividing the total value of the trusts assets by the total number of shares in the company.
You can sell your shares at any time you wish. Any income you receive will be subject to tax and any profit you make from selling shares will be subject to Capital Gains Tax. Some trusts are available as an ISA or a Stocks and Shares ISA. These savings accounts are tax-free so your income and profits will not be taxed. Investing in an Investment Trust can be a great way of making your savings work for you. You need to research which particular trust will be best for you and what level of risk you are comfortable with. Investment trusts will generally have lower annual charges than unit trusts and can have the potential for higher returns.
