P566ORACLE 566 Mon27 Jan C4 1710:24
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THE A-Z OF
INVESTMENTS
I is for Investment trusts
Investment trusts first started back in
the 19th Century. Today there are about
200 investment trust companies quoted
on the Stock Exchange, handling around
£16bn of investors' funds.
In fact, investment trusts are not
trusts at all, but public limited comp-
anies. Their main assets are not, say,
machinery, but shares in other compan-
ies. So, to put your money in invest-
ment trusts, all you do is buy shares
in an investment trust company.
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Your Money ...560 Feature ...567
CADBURY'S CHOCOLATE RECIPE 184 (ITV)
P566ORACLE 566 Mon27 Jan C4 1713:00
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THE A-Z OF
INVESTMENTS
What is the difference between unit and
investment trusts? Unit trusts are
'open-ended' which means the sum inves-
ted by the managers can go up or down
as investors buy or sell back units.
The cost of the units is related to the
value of the shares owned by the trust.
Investment trusts are 'closed-ended' as
they have a fixed sum of capital to
invest. The cost of their shares varies
according to Stock Market demand and
need not reflect the value of the
shares held in other companies. Indeed,
shares in investment trust groups are
often bought at a discount to their
so-called 'net asset value'.
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Your Money ...560 Feature ...567
P566ORACLE 566 Mon27 Jan C4 1711:16
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THE A-Z OF
INVESTMENTS
Unlike unit trusts, investment trusts
are allowed to borrow money to invest.
At a time when interest rates are low
and shares are doing well the chances
of making a profit are increased ...but
so is the risk if things go wrong.
Investment trusts have more choice of
investments. While unit trusts are
mainly limited to securities quoted on
the Stock Market, investment trusts can
buy more shares in the riskier OTC
(Over-The-Counter) or USM (Unlisted
Securities) markets. They also have
more scope for investing in foreign
currencies.
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Your money...560 Feature...567
P566ORACLE 566 Mon27 Jan C4 1701:32
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THE A-Z OF
INVESTMENTS
Although unit trusts can attract inves-
tors by advertising, investment trust
companies may not.
Management charges are higher with unit
trusts ─ typically ¾-1% on the value of
the fund, plus a 'front end' charge of
around 5% when first buying the units.
Buying shares in an investment trust
company costs a minimum of £10-15 in
stockbroker's commission and 1% for
stamp duty. After that management costs
are around 0.4% a year. Investors need
a minimum of £600 or the charges on the
sale of the shares begin to look pricey
compared with the sum invested.
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Your money...560 Feature...567
P566ORACLE 566 Mon27 Jan C4 1701:42
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THE A-Z OF
INVESTMENTS
Investment trusts don't pay tax on any
profit they make from buying and
selling shares. However, investgrs are
liable for tax on any gains they make
when selling their shares in investment
trust companies. This Capital Gains Tax
is payable only if your gains in the
1985-6 tax year are more than £5,900.
Any dividends are paid with basic rate
tax deducted and investors are sent a
tax credit. Non-tax payers can use this
credit to claim a refund from the
Inland Revenue. Higher-rate tax payers
have to pay extra tax.
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Your Money ...560 Feature ...567
P566ORACLE 566 Mon27 Jan C4 1712:05
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THE A-Z OF
INVESTMENTS
Investment trusts have performed well
against other investments. £100 invest-
ed in 1980 would have become £258 by
30th September 1985. A building society
ordinary account would have yielded
£148, with £140 needed to keep up with
inflation over the same period.
The Association of Investment Trust
Companies has a list of stockbrokers
specialising in investment trusts and
publishes a free booklet on how they
work, available from the AITC, 16
Finsbury Circus, London EC2M 7JJ.
Next week: I for Insurance policies.
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Your Money ...560 Feature ...567