Some Things About Investment Trusts

An Investment Trust is a form of collective instrument. It is a close-end fund and is constituted as public limited company. Investor’s money is pooled together from a sale of a fixed number of shares. Usually there is a fund manager that invests in the stocks and shares of various companies. This type of trust has no employees just a board of directors.

The first investment trust was the Foreign & Colonial Investment Trust and it started in 1868. It is the oldest form of investment, it is the largest global growth investment trust in the world and it is still open to investment.

It is always a close-end trust. This means that there are a fixed number of shares in issue which are listed on the stock exchange. These shares can be bought and sold through a stockbroker like any other shares. So why is this different for the investor? With this type of trust, the shares are traded independently of the fund’s net asset value and they can often be at a substantial discount.

If you have such a trust than you will have to pay stockbroker commissions. The difference between the price at which you sell and the price at which you buy is known as the bid-offer spread on the trust’s share price.

An Investment Trust is taxed according to its investment income but its capital gains are not taxed. This type of trust can be better aligned with the investor’s interests. This avoids the double taxation which would otherwise arise when shareholders sell their shares in the Trust and are taxed on their gains.

The Real Estate Investment Trust is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REIT’s usually receive special tax considerations and offer investors high yields as well as a high liquidity method of investing in real estate.

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