Investment Trusts
Investment trusts are similar to unit trusts in that they are a collective investment fund.
The key benefit of any collective investment fund is that it invests in a greater range of shares than the investor themselves could invest in. They pool (collect) investors’ assets and spread the money across a broad range of shares or bonds, according to the objective of the fund.
The difference with an investment trust is that it is a listed company and so operates under slightly different rules to unit trusts.
The objective of the company is to invest in other companies for a profit.
One of the differences of an investment trust is that it can borrow money. Because it is a company it can take out a loan just like any other company. So for example in a rising market if the fund manager expects equities to increase by 10% per annum and they can borrow money for 8% per annum then they may take the gamble on.
In this way investment trusts can be more risky than unit trusts and OEICs. However it should be said that there are so many collective investment funds out there you can choose your own level of risk and make an investment that’s right for you.
