Understanding Investment Trust Funds

What is an Investment Trust Fund?

An investment trust fund is a type of collective investment scheme that pools money from multiple investors to invest in a diversified portfolio of assets. These assets can include stocks, bonds, real estate, and other securities. The fund is managed by a professional fund manager who makes investment decisions on behalf of the investors.

How Do Investment Trust Funds Work?

Investment trust funds issue shares to investors, who become shareholders of the fund. The price of these shares is determined by the net asset value (NAV) of the fund, which is calculated by dividing the total value of the fund's assets by the number of shares outstanding.

Benefits of Investment Trust Funds

Investment trust funds offer several benefits to investors:

• Easy Access: Investors can buy and sell shares of investment trust funds on stock exchanges, providing liquidity and easy access to their investments.
• Simplicity: Investment trust funds provide a simple and convenient way for investors to gain exposure to a diversified portfolio of assets without having to directly manage individual investments.
• Income Potential: Some investment trust funds focus on generating income for investors through dividends and interest payments.
• Gearing: Investment trust funds have the ability to borrow money to invest in additional assets, potentially enhancing returns.
• Accountability: Investment trust funds are governed by a board of directors who oversee the fund's operations and ensure that it is managed in the best interests of the shareholders.

How to Invest in an Investment Trust Fund?

Investors can invest in an investment trust fund by purchasing shares on a stock exchange. Some investment trust funds also offer the option to invest through an Individual Savings Account (ISA), which provides tax advantages. It is important to consider any fees associated with investing in an investment trust fund, such as management fees and transaction costs.

Dividends and Selling Investment Trust Fund Shares

Investment trust funds may distribute dividends to shareholders, typically on a regular basis. The frequency and amount of dividends can vary depending on the fund's investment objectives and performance. Investors can sell their investment trust fund shares on a stock exchange at the prevailing market price.

The Role of a Fund Manager and Board of Directors

A fund manager is responsible for making investment decisions on behalf of the investment trust fund. They analyze market trends, research potential investments, and manage the fund's portfolio. The board of directors provides oversight and ensures that the fund is managed in accordance with its objectives and the best interests of the shareholders.

Understanding Gearing, NAV, and Premiums/Discounts

Gearing refers to the use of borrowed money to invest in additional assets. This can potentially enhance returns but also increases the risk of losses. NAV, or net asset value, is the per-share value of the investment trust fund's assets. Premiums and discounts refer to the difference between the market price of the investment trust fund's shares and its NAV.

Risks Associated with Investment Trust Funds

Investment trust funds involve risks, including the potential loss of the invested capital. The value of the fund's assets can fluctuate based on market conditions, and there is no guarantee of returns. Investors should carefully consider their investment objectives, risk tolerance, and seek professional advice before investing in an investment trust fund.

Monitoring an Investment Trust Fund

Investors can monitor the performance of an investment trust fund through regular updates provided by the fund manager. This can include reports on the fund's holdings, performance, and any changes in investment strategy.