Page 4: Setting up and managing Investment Trusts
An Investment Trust is a public limited company in its own right and is listed on the London Stock Exchange. As such, it has an independent board that protects shareholders' interests and appoints the investment management company. Investors buy shares in the company. An Investment Trust does not make or sell physical goods. Its sole purpose is to use shareholders' money to invest in the shares of other companies.
Investment Trusts are closed-ended funds: at launch, they issue a fixed number of shares to raise the initial pool of investment capital, the value of which will increase or decrease according to how well it is invested. Typically, an Investment Trust holds shares in 50 or 60 different companies at any one time; each of these will form part of its investment portfolio. Investing in a wide spread of different companies helps to spread risk for investors, as they are not relying on the performance of just one company.
Investment Trusts are just one way of spreading risk through the Stock Market. Other methods include Unit Trusts and OEICs, which can also invest in 50 or more companies on behalf of investors.
Whilst Investment Trusts are closed-ended, Unit Trusts and OEICs are open-ended. This means that unlike Investment Trusts, they expand or contract in size as people invest in or sell their investment.