Understanding Investment Trusts
When a PLC – Public Limited Company – is listed on the stock exchange and then puts investment shares in different companies they are referred to as Investment trusts. The shares will be in more than one company and over time a portfolio will be built up and needs to be managed by professionals. There are clear rules and regulations that they have to follow and these are known as a Memorandum and Articles of Association. Under the process, the amount of shares that can be available at any time will be limited, and it is going to be the market that will dictate what the shares will cost. From time to time, gearing will take place and this is totally legal. It is purely borrowing money from another area to increase the amount of shares owned. This will be done purely to increase the value of the portfolio and allow the investment trust to improve.
Understanding Unit Trusts
Again there is a management team that is looking after the funds. Like investment trusts, unit trusts are investments that have been pooled, and there are Trustees who will give consent to the actions taken by these managers. There is a Trust Deed in place and this sets out what can and cannot be done. There are no shares involved here and it is actually units that are bought and sold and the amount of units that are available for sale will depend totally on the demand that is shown for them. The price can also change and the unit will cost whatever the value is considered to be at the time of purchase. Unlike with investment trusts, gearing is not allowed and any money used to make purchases must belong to the buyer. When setting up there is a cost and it can be as much 5.5% and there are also charges that must be paid by the investor and these can be anything from 1% to 1.5%.
So, Is It All Worth It?
It will be safer to invest in Unit Trusts as there is less risk, but as you will imagine, they offer slightly lower returns. If you are prepared to take a risk then go for Investments trusts, but you have to be aware that you could lose money.
Author Bio: Justin Kerr is the creative head behind this informative article. He is a reputable banker who enjoys blogging about the latest financial policies in his spare time. The secrets of binary options trading are revealed here at - www.binaryoptionsexplained.com.