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How investment trusts work

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What is an investment trust?

Investment trusts have been around for a lot longer than other types of investment funds—almost 150 years—and are like them in many ways. Your money is pooled with contributions from many other people and used to buy a portfolio of investments.

They’re chosen and managed by an expert team, who are in charge of the day-to-day running of the trust, deciding when to buy and sell investments. If they make good decisions, your investment may rise in value although there is no guarantee and you may get back less than your original investment.

Additionally, you get access to a much wider and more diversified portfolio of investments more easily than you could hold on your own as your money is pooled with contributions from many investors and used to buy a portfolio of investments giving you a stake across hundreds of companies and therefore not reliant on the fortunes of just one or two businesses.

How they work

Investment trusts are Public Limited Companies (PLCs) that are listed on a stock exchange, so investors buy and sell from the market. They come with their own independent board of directors, and you become a shareholder when you invest in a trust.

As investment trust shares are listed on the London Stock Exchange, their prices are affected by supply and demand. This means that share prices may be higher or lower than the Net Asset Value (NAV). The NAV is the value per share of all the assets owned by the investment trust.

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Limited shares

An investment trust has a fixed number of shares (closed-ended) so managers can buy/sell when the time’s right, not because investors join or leave.

Traded on an exchange

The price of an investment trust is determined by the market, not its NAV.

Borrowing powers

Investment trusts can borrow and use gearing to take advantage of opportunities. Interest must be paid whether the trust profits from the loan or not.

Income

Investment trusts can retain up to 15% of their income in any year. This can provide extra income in the future and help make their payments consistent.

Governance

Every investment trust has an independent board of directors. They have a legal obligation to safeguard shareholders’ interests.

Shareholder engagement

By buying shares in an investment trust, an investor becomes a company shareholder. They can then vote on issues such as the appointment of directors or changes to the investment policy.

Remember, the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Benefits of investment trusts

Investing in investment trusts has a number of benefits.

Income consistency
A long-term strategy
Fully invested
Wider access
Gearing

Risks of investment trusts

There are, however, a few things to consider, as well.

Discounts and premiums
Liquidity risk
Gearing
Volatility

Investment trusts management

Actively managed investment trusts
MultiManager investment trusts

Evaluating investment trusts

It takes time, experience, knowledge and skill to work out which investment trust could be the right for you. Here’s what you need to consider, along with your personal circumstances (like the length of time you want to invest).

Age of the investment trust
Size of investment trust
Fund manager tenure
Independent ratings
Charges
Trust objective

How to invest in investment trusts

Fidelity investment trusts

Capture the powerful opportunities that stock markets can offer with our investment trusts, some of the most compelling investments across Asia, China, Europe, Japan, and the UK.

Invest in a Fidelity Investment Trust

Choose from a wide range of investment trusts

Explore our full range of investment trusts to search, filter and select your favourites from a broad selection of providers.

Investment Finder

Remember, the value of investments and the income from them can go down as well as up, so you may get back less than you invest.