Investment trusts

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3. Difference from unit trusts

Unit trusts are another kind of pooled investment, in that they invest money from lots of individuals in other quoted companies.

Unit trusts are not quoted companies though, so they don't have shares of their own. Instead they sell 'units' which give the holder the right to a proportion of the trusts annual dividend income and ownership of a proportion of its capital.

Management charges for unit trusts tend to be higher than for investment trusts (typically 1.5% as against under 1%) and the bid-offer spread can be wide. This is the difference between the price at which the trust offers to sell and buy back its units.

Unit trusts tend to be better known than investment trusts for two reasons:

1. Investment trusts, being quoted companies, are not allowed to advertise (except their full-scale prospectuses and their savings schemes).
2. Investment trusts seldom pay commission to 'independent' advisors (IFAs) so they don't have such a good sales network.

Long term, the average performance of investment trusts has been better than that of unit trusts.

Summary

1. What are investment trusts? 2. What does an IT do? 3. Difference from unit trusts 4. IT specialisation 5. Tax advantages 6. Discounts: the share price of ITs 7. Gearing 8. Split capital trusts 9. Warrants 10. Ways of investing in an IT 11. Factors to consider when choosing an IT 12. Where to find information about ITs 13. Conclusion