A company that invests in other companies

An investment trust is a company whose line of business is investing in other companies.

An investment trust company has shares and is quoted on the stock market. You buy into this type of fund by buying shares in the company.

Unlike other investment funds, however, the share price of unit trusts is determined by supply and demand factors in the marketplace. If the market has more buyers than sellers, the price tends to rise. If it has more sellers than buyers, the price generally goes down.

Investment trusts can borrow money and use it to buy more investments. This can work to the company's advantage if the investments perform well but can magnify losses if investments perform badly.

To cater for the objectives of different investors, investment trusts often issue different types (or 'classes') of shares. Certain share classes suit those seeking income while others suit those seeking growth.

Charges

The charging system for investment trusts is similar for unit trusts. You will usually pay dealing charges when you buy and sell Investment trust shares in addition to the spread difference between the prices at which you can buy and sell the shares. There is also a yearly management fee that is paid out of the investment fund.