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A short guide to investment funds

 

An “Investment Fund” or investment trust is a form of collective investment scheme, wherein your money and that of other investors are gathered together and then managed by a fund manager to gain profit. This profit is usually achieved by investing in it in stocks. The term can also be related to a person or a company.

It is a closed-end fund, unlike mutual funds or unit trust, which are open-end funds. Whereas an open-end fund buys and sells stocks at a percentage of the funds net asset value, a closed-end fund sells stocks at a limited number and it doesn’t sell stocks at prevailing market prices, but rather based on the supply and demand. Another difference between the two is that the fund manager of the latter can borrow money to purchase stocks but can lead to increased risk.

There are also many types of investment funds. The usual type involves having one kind of share that is active for a limited period of time. A “Split Capital Investment Fund” gives investor a chance to choose the kind of shares that they prefer. Arranged according to priority and risk, these include: zero dividends preference shares, income shares, annuity income shares, ordinary income shares, and capital shares. A “Real Estate Investment Fund” is a form of tax given to companies that invest in real estate. Since they are charged with reduced tax, they are required to return 90% of their income to you if you are an investor.

If you choose to start an investment fund company instead, first you must be a UK resident. Your income must come from investments, and you must distribute at least 85% of the company income as dividends.

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