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Investment Trust in India – Role of Investment Trusts – How does it Work?

Learn about Investment Trusts in India

An investment trust is nothing but a kind of various combined investment means available to the investors. In reality, it is simply a method of merging your capital with the other investors to fetch profit from several returns of investing as a part of the group. When one invests in any kind of investment trust from that time onwards one successfully becomes a shareholder of that particular company. It offers one to spread one’s risk between various companies, industries and geographical areas. This simply implies that one is not putting all the eggs in only one basket that can leave one’s investments unprotected to the greater extent of instability that could affect adversely on the returns. For that reason, nowadays investment trusts are believed to be well established method of investing.

Role of investment trusts:

Investment trust companies play a major role in aiding well- managed business to protect the finance. Not only this, they offer alluring opportunities to the investors- from parents who want to save for the education of their children to young adult who wish to save for the future or to offer a minimum income especially for those who already in retirement. Apart from this, they also offer a service to the commercial organization that are accountable for offering income as well as growth for the pension funds and the other investments at the same time.

How does it work?

Basically, investment trust is considered to be a registered company that provides a decided amount of shares that could be sold and bought on the stock exchange. The cost of all these shares is determined by supply and demand in the market. Since a decided amount of shares are provided, these funds are well-known as the ‘close- ended’. Generally, investment trust has mainly two prices. The first one is share price that differs depending on the number of people who wish to purchase it. Another is the price of its properties divided by shares that offers net asset price per share.

Why you go for an investment trust?

An investment trust always pools one’s capital with that of the other investors and hires some fund managers who are professional to capitalize this money in a huge array of various companies whether it is a real estate investment trust or national investment trust. This implies that if one has a very small amount for the investment, still one can get exposure- favorably- to an expanded and professionally run group of shares. One’s risk is always spread more than if one were dependent on the accomplishment of one or a multiple companies. Well, if the investment companies that fund managers usually invest in do very well, then the price of the investment trusts will gradually increase and so should the cost of shares one owns in it. Well, there are multiple benefits of this investment trusts. Let’s have a look behind its massive popularity:

  • Facility to borrow: In this case, the manager of the trust can lend money to maximize the market exposure- a mechanism that can give support returns especially in the raising markets. Basically this is mentioned to as gearing. If the trust lends the equal of 10% of its properties then it will definitely be 10% geared.
  • Professional proficiency: Normally decisions regarding investment are always taken by the skilled and expert fund managers who mostly spend their valuable time examining individual market and companies.
  • Self-regulating board: Unlike any other registered company, investment trusts are usually supervised by a self- regulating board which acts on one’s behalf and monitors the performance of the investment closely. Not only this, they have the capability to alter the fund manager who is not concern about the trust’s performance.
  • Value for the money: Generally many other pooled or collective investments comprise higher price in the shape of the initial fees of investment or the annual charges of management. Well, investment trust is somehow different from others. They are comparatively cost- effective means of accessing stock market.
  • Global potential: With the help of investment trust, one can easily gain admittance to the chances at home as well as in abroad and also in both alternative and traditional asset classes.

Investment trust vs unit trust – 

Unlike an investment trusts, the unit trust are not operated particularly on stock market. Unit trust is known as open- ended fund because the managers can easily issue more shares or unit if people want.

Well, the importance of investment trust can never be overrated.

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