Are unit trusts better than investment trusts?
They are certainly different! Both are collective investments, but investment trusts are closed ended. That is to say the number of shares in issue is fixed. As a consequence, the price may go up and down not in direct relation to the value of the underlying assets, unlike a unit trust where the unit price fluctuates depending on the value of the investments held by the trust. Moreover, an investment trust may borrow money to invest on behalf of its shareholders. This can provide a boost to investment performance when markets are rising. However, equally, when they’re falling, the falls will be exaggerated. Another difference is that investment trusts are permitted to invest in unquoted shares which again can add to the risk for investors, even if the potential rewards might be greater.
