What is an investment trust?
Investment trusts are companies which invest in the shares of other companies on behalf of investors. Investors’ money is taken and pooled together by a professional fund manager who will then purchase stocks and shares in a wide variety of companies.
What are the risks involved with investment trusts?
Shares in investment trusts are traded on the stock exchange and the price will fluctuate, just like stocks in publicly listed companies. That means the value of investment trusts can go down as well as up and you might not get back the full amount you invest.
There are similarities between investment trusts and Unit Trusts however one important difference is that the manager of an investment trust can borrow capital to purchase shares. This leverage may increase gains but there is also an increased element of risk.