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Investment Trust

Last updated 25th Nov 2022


The term investment trust refers to a publicly-listed company that generates profits for its shareholders by investing in other publicly-listed companies. Investment trusts are pooled money portfolios, much like a mutual fund, and typically traded on the London Stock Exchange.


An investment trust is similar to a closed end fund, operating as a public company. The name is a misnomer, in that it is not created by a donor like other trusts and is not recognized under the law as a trust. These companies are formed by issuing shares from a trust, and the money generated through the sale of shares is pooled together. A board of directors will designate a fund manager to invest the pooled funds in the stock of other companies.

The shares of the trust are traded on a stock market, which is oftentimes the London Stock Exchange. The price paid for a share of the trust is stated in terms of a Net Asset Value, or NAV. It is possible for shares to trade at a premium or discount to its NAV. Some of the other features of these investments include:

  • Rights: as is the case with common stock, shareholders are entitled to vote on issues such as the appointment of members to the board of directors.
  • Retention of Income: these trusts can retain up to 15% of the income generated annually.
  • Debt: investment trusts can borrow money to increase returns to shareholders. This is referred to as gearing.
  • Fees: since these trusts only have a board of directors, their operating costs are relatively low.
  • Closed-End: the number of shares issued is fixed, thereby limiting the size and complexity of the trust.

Related Terms

pour over trust, land trust, oral trust, nominee trust

Moneyzine Editor

Moneyzine Editor