Investment trusts
are collective investments which invest in equities. They are 'closed ended' i.e. have a fixed number of shares in the fund.
This is the main difference from OEICs or unit trusts where the number of units or shares varies with supply and demand. This means the fund manager can take a longer-term view of the investment as the level of the fund is not constantly changing.
The fund can borrow money to invest (gearing or to gear up). This can increase the potential returns in a rising market but also increases the risk involved
Charges vary a great deal but usually would be one or more of:
· Initial charges on investment
· Annual management fees
· Exit charges on encashment
· Bid/offer spread
As with most investments, the value of can go down as well as up, but as the funds are pooled and spread the risk is less than if the money was all invested in one place. However, as there are so many unit trusts available, you can choose your own level of risk. The provider will give you details of how the funds are invested and a risk profile.
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