Investment trusts are much like funds but they are publicly listed and closed ended, meaning there is a limited number of shares available. An investment trust trades on a stock exchange. The investment trust is overseen by a fund manager and a board of directors.
The pricing of an investment trust is based solely on supply and demand, so the cost of the asset and its underlying value will not always be aligned. The difference in the net asset value (NAV) of the trust and its price is what is known as the ‘discount’ or ‘premium’ and it is important to consider when investing in these asset types.
Like exchange traded funds and commodities, investment trusts may borrow money to try and boost investment returns; something that is not possible through a traditional investment fund.
Because investment trusts are traded on a stock exchange, there is an additional charge for investing in them, known as the dealing charge, to cover the cost of stockbroking services. Stamp Duty Reserve Tax of 0.5% is also charged on investments into investment trusts and a ‘PTM’ levy (Panel on Takeover and Mergers levy) applies where you buy or sell investment trusts exceeding £10,000 in value.
Investment trusts are complex and aren’t suitable for everyone. Please speak to your financial adviser for more information and before making any investment decisions.