What is an Investment Trust?

Investment Trust

A collective investment vehicle known as an investment trust is one that combines the money of several individuals to make investments in a variety of assets. Investment trusts are closed-end, which means they have a certain number of shares that are exchanged on the stock market, in contrast to mutual funds. These shares are available for purchase and sale on the secondary market, where supply and demand factors govern the price instead of the underlying assets’ net asset value (NAV).

The ability of Investment Trusts to use gearing—borrowing money to invest in more assets—is one of its distinguishing characteristics. Although this leverage can boost returns, it also raises risk.

Additionally, Investment Trusts are set up like businesses, with a board of directors in charge of managing the fund. Unlike previous collective investment plans, this structure adds another level of oversight. An income stream can be created by keeping or distributing the dividends from the underlying investments to shareholders.

The value of investment trusts is determined by the state of the market, and their share prices can be trading above or below the NAV. This feature adds a degree of market speculation and draws in investors looking for both income and possible capital gains. All things considered, investment trusts give investors a special method to access diverse portfolios with chances for both income and capital growth.