Investment trusts offer the potential for good returns without much of the risk associated with more traditional equity based investments.
What is a fixed interest investment trust?
Investment trusts are often categorised with OEICs and unit trusts but they work in a different way.
Investment trusts work like an ordinary company in so much as they issue shares to raise money from shareholders and then invest that money.
However, rather than investing this money in physical assets, investment trusts companies invest their money in other companies, bonds and other securities.
An investment trust savings plan has a set number of shares. So, if you want to buy shares in an investment trust, you normally have to buy them from someone who already holds some.
A fixed interest investment trust invests your money predominantly in high yielding fixed interest securities such as government bonds and equity-like securities within fixed income markets. This makes it a less risky option, although there will still be some risk to your capital and growth.
Much of the investment trust performance comes from dividend income while some capital growth comes from capital appreciation generated by investments which have equity-related characteristics. This is why they are sometimes called ‘high interest investment trusts’.
What to look for when you choose high interest investment trusts
There are various factors you should consider when undertaking a high rate investment trust comparison including:
- Income yield/investment trust performance
- Charges and fees
A simple way to compare interest bearing investment trusts is to consider their income yield.
This shows the current or past investment trust performance and can help you establish which investment trusts have a good track record of high returns.
Bear in mind that not all high interest investment trusts are the same and some will invest a higher proportion in equities than others that are ‘safer’.
Secondly, you should compare the fees and charges for investing. You can expect to pay a charge when you buy and sell shares in an investment trust and you may make a small initial loss based on the difference between the ‘bid’ and ‘offer’ price of the shares.
You should also compare the annual management fees and other administrative costs charged by the fixed interest investment trust that you are considering.
By taking all of these factors into consideration when you compare investment trusts you should be able to find the best investment trust fund for your circumstances.