An Investment Trust is a company with a stock exchange quote that invests its shareholders money in a portfolio of shares in other companies.
In effect, they are collective investment funds with a fixed capital and a fixed number of issued shares that are traded on a stock exchange.
As they have a fixed capital they are known as ´closed end´ trusts to distinguish them from Mutual Funds/Unit Trusts.
The share price of an Investment Trust Company is dependant upon the usual stock market criteria of supply and demand although mostly the price will bear a relationship, maybe 5% more or less either side of the overall value of the trusts investments.
Mutual Funds and Unit Trusts have variable capital to invest in other securities that is dependant upon the amount of purchases and sales in the open market of their units at any given time.
As their available capital to invest in shares varies Mutual Funds and Unit Trusts are known as ´open ended´ trusts.
The units are bought from or sold to the trust or fund and are not traded on a stock exchange.
The value of the units or shares in an ´open ended´ trust is calculated by dividing the overall value of the funds investments by the number of units or shares outstanding.
Although this value will vary throughout a trading day it is usual for ´open ended´ trusts to buy back or sell their units on a fixed timetable to avoid the confusion of constantly calculating units outstanding and share prices of the investments[
All three offer the stock market investor the security of spreading the risk and professional management.
There are many of both types of trusts that specialize in a market sector or even in a specific category within a sector.
For example there are funds and trusts that only invest in precious metals and allied companies such as mining, and those that restrict their investing activities to gold and /or gold producers.
Category: Mutual Funds