Investment trusts can offer a steadier pool of capital, access to less liquid assets, the possibility of buying shares below their net asset value (NAV), and the option to borrow to invest. Each benefit has a corresponding risk: a trust’s share price can fall sharply below NAV, and gearing can magnify losses as well as gains. These features may suit some strategies and investors, but they do not make trusts categorically better than unit trusts or OEICs.
How the two structures handle investor money
An investment trust is a listed public limited company with a fixed number of shares in issue. Investors generally buy and sell those shares with one another on a stock market. An open-ended fund, such as a unit trust or OEIC, issues or cancels units as money enters or leaves the fund.
That structural difference affects how a manager may need to respond to investors. An open-ended fund may have to sell investments to meet redemptions; an investment trust does not ordinarily have to sell portfolio holdings just because one shareholder wants to exit. The Association of Investment Companies (AIC) explains the structures in its guide to investment companies.
Four potential benefits—and their trade-offs
1. A stable pool of capital can support longer-term decisions
Because the trust’s share count does not expand or contract with each investor transaction, its manager can make portfolio decisions without the same direct pressure to sell assets to fund ordinary redemptions. That can be useful when an investment strategy needs time for an asset to mature or for its value to be realised.
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This is not a promise of better management or returns. Trust shares can still be sold by investors, and the share price can move independently of the value of the portfolio.
2. The structure can accommodate less liquid assets
Infrastructure, property and private companies are examples of assets that may take longer to buy or sell than shares in large listed companies. A closed-ended structure can give a manager room to hold such investments without meeting every investor exit by selling portfolio assets. The AIC discusses these asset types in its structure guide; the FCA has also described closed-ended investment companies as a possible way to access illiquid assets while investors can seek to sell their shares on demand in its speech on open-ended funds investing in less liquid assets.
“On demand” does not mean at a fair NAV price or at all times. A trust’s shares still need a buyer, and in stressed markets a seller may have to accept a steep discount to the value of the underlying assets.
3. Shares may trade below the value of the underlying assets
NAV is the value of a trust’s assets minus its liabilities. Supply and demand for its listed shares determine the market price, which may be above or below NAV. A price below NAV is called a discount; a price above NAV is a premium.
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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsIf NAV rises while a discount narrows, the share price may benefit from both movements. The reverse can also happen: a widening discount can deepen a loss even if the underlying assets hold their value or rise. A discount may also reflect investors’ concerns about a trust, its strategy or its holdings, so it is not automatically evidence that the shares are cheap. The AIC explains discounts and premiums in its guide to investment companies.
4. Gearing can add an investment lever
Some trusts borrow money to invest. If the investments bought with borrowed money earn more than the borrowing costs, gearing can enhance returns. If those investments fall, borrowing magnifies losses and increases risk. Trusts do not all gear, and their gearing levels and policies vary. Check the individual trust’s policy, costs and actual exposure rather than assuming it uses borrowing. The AIC outlines gearing in its investment trust guide.
What performance comparisons can—and cannot—show
Historical comparisons provide context, not a forecast. In research published on 27 April 2026, the AIC used Morningstar data to compare investment trusts with “sister” open-ended funds: pairs with at least one manager in common and similar mandates. The comparison included only pairs where a manager was shared for the full period. Returns ran through 31 March 2026.
| Period through 31 March 2026 | Trusts that outperformed | Average outperformance |
|---|---|---|
| 1 year | 82% (41 of 50 pairs) | Not stated for this period (AIC, 27 April 2026) |
| 3 years | 72% (36 of 50 pairs) | Not stated for this period (AIC, 27 April 2026) |
| 5 years | 53% (25 of 47 pairs) | Not stated for this period (AIC, 27 April 2026) |
| 10 years | 77% (27 of 35 pairs) | 1.3 percentage points a year (AIC, 27 April 2026) |
These are historical results for a limited sample selected for manager overlap and similar mandates, not evidence that every trust outperforms or that past returns predict future performance. See the AIC’s performance release and methodology. A comparison is most informative when the funds have genuinely similar objectives and holdings; structure alone cannot explain a result.
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Governance and income are trust-specific features
Shareholder votes and board oversight
Investment trusts are companies with independent boards, and shareholders can vote and hold boards and managers to account. The FCA says statutory voting rights are typically on a one-share, one-vote basis; a material change to a trust’s published investment policy requires a further shareholder vote and FCA approval. These rights make governance a useful comparison point, but they do not guarantee sound decisions or investment performance. The FCA sets out its perspective in Investment trust votes, conflicts of interest, and our role.
Dividend flexibility is not a guaranteed income advantage
AIC materials describe trusts as having flexibility relevant to income distributions. Whether that matters to an investor depends on the particular trust’s dividend policy, reserves, yield basis and ability to sustain distributions. A high yield is not guaranteed, and income is not the same as total return. The AIC covers income in its trust guide and its 2024 explainer, Looking for a little bit more.
How to compare a trust with an open-ended fund
Compare funds with similar objectives and mandates, not merely the same broad label. Review how each handles investor dealing and liquidity, then consider the portfolio and the costs that can affect returns.
- Mandate and holdings: Check what each fund owns and what it aims to achieve.
- Liquidity and dealing: Understand how units or shares are bought and sold, and whether the trust’s share-price liquidity could differ from the liquidity of its assets.
- Discount or premium: Look at the current position and its history alongside NAV; neither a discount nor a premium is a standalone verdict on value.
- Gearing: Check the trust’s policy, current exposure and borrowing costs.
- Income: Read the distribution policy and assess the yield basis and sustainability rather than relying on the headline yield alone.
- Costs: Compare internal charges and transaction costs as well as dealing commission, spread, platform and custody charges, taxes and any advice costs that apply to you.
- Governance: Consider the trust’s board, shareholder rights and approach to oversight.
The AIC’s choosing an investment trust guide notes that ongoing charges are backward-looking and exclude some costs, including performance fees, transaction costs and gearing costs. Different disclosure documents may therefore make direct cost comparisons difficult. Check current documents for each fund and the charges on your own platform or broker.
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