Investment guide
What is an investment trust?
An investment trust is a listed company that invests in a portfolio of assets on behalf of its shareholders. Unlike an open-ended fund, it has a fixed number of shares in issue at any one time and those shares trade on the stock market.
The structure
An investment trust is a company whose business is investing.
Investors buy shares in the investment trust on the stock market. The trust then invests the capital according to its stated objective and strategy.
Because it is a closed-ended company, the manager does not normally have to sell underlying investments simply because individual shareholders want to exit. Investors usually sell their shares to another market participant instead.
The trust's shares trade in the market and can move independently of the value of the underlying portfolio.
Discounts & premiums
The market price can differ from net asset value.
The net asset value — NAV — represents the value of the trust's underlying assets, less liabilities, usually expressed per share.
Trading at a discount
The share price is below the NAV per share.
Trading at a premium
The share price is above the NAV per share.
Discounts and premiums can change over time depending on investor demand, sentiment, performance expectations and other market factors.
Investment-trust investors therefore face both portfolio risk and share-price/NAV risk.
Borrowing
Investment trusts can use gearing.
Gearing means borrowing money to invest alongside shareholders' capital. If the additional investments rise sufficiently, gearing can enhance returns. If markets fall, it can magnify losses.
The amount and type of gearing varies between trusts, so it is an important feature to understand before investing.
It is one reason two trusts investing in similar markets can experience quite different levels of volatility.
Income
Investment trusts can retain some income for future distributions.
One distinctive feature of many investment trusts is the ability, subject to company law and the trust's circumstances, to retain part of the income received in stronger years and potentially use reserves to support dividends in weaker years.
This can make some investment trusts attractive to investors seeking income, but dividends are not guaranteed and can still be reduced or stopped.
Risk
Investment trusts can be more complex than a simple diversified fund.
Market risk
The underlying investments can fall in value.
Discount risk
The trust's shares can fall further than the underlying portfolio if the discount widens.
Gearing risk
Borrowing can amplify losses as well as gains.
Liquidity risk
Smaller or specialist trusts can sometimes be harder to trade at the price you expect.
Investment trust vs open-ended fund
Both pool investor money, but the structure is different.
Open-ended funds such as OEICs or unit trusts generally create or cancel units as investors enter and leave. Investment trusts instead have shares that are traded on an exchange.
This structural difference affects pricing, liquidity and how the manager deals with investor flows. Investment trusts can also use gearing and their shares can trade at discounts or premiums to NAV.
The useful question is whether the investment strategy, risk, charges and structure suit the role the investment needs to perform within the wider portfolio.
Investment planning
Considering investment trusts as part of a portfolio?
A personal review can consider the underlying portfolio, discount or premium, gearing, charges, income objective and whether the trust fits your wider investment strategy.
Book a conversationThis guide is for general information only and is not personal financial, investment or tax advice. Investment trusts and their underlying assets can fall as well as rise and you may get back less than you invest. Discounts, premiums and gearing can increase volatility. Content checked against current FCA and UK investment-trust guidance on 16 September 2026.