For financial professionals in the UK

Investment Trusts And Funds – So What’s The Difference?

27 Apr 2020
Trusts vs Funds Header


Investment trusts and funds have much in common, most obviously the fact that they enable investors to ‘pool’ their money with that of others, thereby benefiting from exposure to a wide range of assets through a single vehicle. It could be argued that the similarity ends there however!

Despite having been part of the investment landscape for over 150 years, investment trusts are much less well-understood than funds and, consequently, have attracted much less attention – the total assets under management in UK investment trusts at the end of 2019 was in the region of £200 billion1, whereas the assets within the UK investment industry as a whole was about £9.1 trillion2.

However, investment trusts are experiencing something of a resurgence in terms of their popularity – in the last 10 years, their total assets have increased by over £120 billion3, more than doubling the size of the sector. The table sets out to explain why that might be the case by explaining the 10 most important differences between investment trusts and their fund counterparts by way of a side-by-side comparison.





Funds are typically structured as ‘open-ended’. Investors buy and sell units directly from and to the fund manager, which issues or cancels units respectively, in line with investor demand. There is no limit on the number of units that may be in issued at any one time. Investment trusts are ‘closed-ended funds’ because they issue a fixed number of non-redeemable shares for investment. Investors buy and sell shares by trading amongst themselves on a recognised stock exchange, in a similar way to a standard company share.


Mutual funds and unit trusts are forms of open-ended investment. They are not established as companies, but are governed as a legal trust. Open-ended investment companies (OEICs), introduced in 1997, are governed under company law. Investment trusts are not actually trusts but public limited companies in their own right, and listed on a recognised stock exchange. They are not bound by the same investment rules as unit trusts, giving the fund managers more flexibility.


The price of units in a fund is directly linked to the value of the underlying assets. Units are typically priced once a day. An investment trust’s share price is dependent on two key factors: the performance of the underlying assets, and supply and demand for the shares. At any particular time, the shares could be trading at a discount to the value of the underlying assets (where investor demand is low), or at a premium (where investor demand is high).


The fund and the fund manager are essentially the same entity, and do not operate independently of each other. As companies, investment trusts have a board of directors, which is responsible for supervising the activities of the fund managers and seeks to ensure that they perform well and comply fully with the objectives of the trust.


Open-ended funds are not permitted to borrow. Investment trusts are able to borrow money, which can be invested alongside the capital provided by purchasers of the shares. This is known as ‘gearing’, and offers the fund managers the opportunity to take advantage of a long-term view, or to react swiftly in terms of investing in a particular asset.

Reserving for income

Investment funds are obliged to distribute all the income generated by the underlying assets of the fund to unitholders. Investment trusts are allowed to ‘reserve’ up to 15% of the income earned by the underlying assets in any year in order to build a safety net should future years prove to be leaner.4 Many trusts take advantage of this facility by aiming to grow their income distribution to shareholders, year after year, building up long records of dividend increases.


Open-ended funds constantly experience inflows and outflows of investors’ funds and can encounter difficulties when investors withdraw their money en masse during periods of volatility. Investment trusts aren’t required to cater for inflows and outflows of investors’ funds and therefore don’t need to dispose of any assets or hold a ‘cash reserve’ to satisfy the needs of those wishing to sell shares.

Long-term vs short-term

Certain types of investment don’t have a lot of liquidity, i.e. there may not always be a ready-buyer for them – property being an obvious example. These asset types can therefore be less well-suited to a fund. More illiquid investments are typically better suited to an investment trust structure since the managers are able to take a longer-term view regarding their asset holdings – they don’t need to sell assets to meet the needs of those selling shares. As a result, investment trusts will often be seen to hold alternative assets such as unquoted shares, forestry, wind farms and, of course, residential and commercial property.

Shareholder rights

Whilst the unitholders of a fund enjoy certain rights, they are often rather more limited than those of corporate shareholders.

Holders of shares in an investment trust are shareholders in that company and, in addition to benefiting from any appreciation in the price of the trust’s shares, are entitled to: i) receive any dividends that the trust distributes, ii) receive the annual and half-yearly reports, containing detailed information about the trust, and iii) attend annual general meetings, voting on issues such as the appointment or removal of directors, the trust’s investment objective, and the remuneration of board members.

Management charges

Ongoing management charges for funds tend to be in the region of 0.75%-1.5% pa where the fund is actively managed. For passive funds, charges are significantly lower, and often less than 0.5% pa. Ongoing charges for investment trusts vary to much the same extent as funds, although some are almost as cheap as passive funds. Larger trusts can also be subject to very low management charges. The City of London Investment Trust, for example, currently charges an ongoing 0.39% pa, Henderson Smaller Companies Investment Trust charges 0.42% pa, and The Bankers Investment Trust charges 0.5% as of 31 March 2020.


1 Source: AIC, Investment companies reach record £200 billion, August 2019

2 Source: AIC, Investment companies reach record £200 billion, August 2019

3 Source: AIC, Investment companies reach record £200 billion, August 2019
4 Source: MasterAdviser, Investment Trust Revenue Reserves, March 2020


Liquidity: The ability to buy or sell a particular security or asset in the market. Assets that can be easily traded in the market (without causing a major price move) are referred to as ‘liquid’.

Volatility: The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment


These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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