Page 5: Reasons for investing in an Investment Trust
Investment Trusts are attractive to investors for several reasons. Some people buy Investment Trusts to build up a pool of capital for some future event such as paying for their children's university education, while others invest in this way to provide a pension. Investors can also benefit from investing in Investment Trusts in a tax efficient manner such as in an Individual Savings Account (ISA) which allows individuals to invest £7,000 every year without paying any tax on the dividends paid or on the profits when they sell their shares. It is not only individuals that buy shares in Investment Trusts. Financial institutions such as Pension Funds also buy shares in Investment Trusts, seeing them as attractive ways of accumulating funds for their members. However, they are aware that the value of their investment can go down as well as up.
Investment Trusts are an ideal way of investing because Investment Trusts:
- may hold shares in 50 or more different companies at any one time. This means investors can enjoy all the advantages of stock market investment - the potential for greater returns than bank or building society accounts - whilst spreading the risk; it is safer than investing directly in the shares of just a few quoted companies
- have tended to deliver, on average, excellent returns over the longer term - well above that available from deposit accounts, inflation and many other forms of stockmarket investment
- tend to have low costs to the investor
- permit small scale investment. Investors can invest as little as a £250 lump sum or perhaps just £25 per month
- are well placed to ensure good rates of return over the longer-term period of 5 years or more; they may suffer downturns when financial markets fall eg in times of recession or crisis.