What is an investment trust?
An investment trust manages its shareholders’ money by investing it in other companies. Itself a business, it will employ a professional fund manager to trade 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.