Investment Trusts not covered by the FSCS?

Audaxer
Audaxer Posts: 3,506 Forumite
First Anniversary Name Dropper First Post
in Savings & investments
I have just come across this page
https://www.rplan.co.uk/pages/help/investor-protection
which says that Investment Trusts are not covered by the FSCS. I had assumed they were covered up to £50k, the same as fund houses are.

Please can you reassure me - is there any chance of an Investment Trust going into liquidation and losing your investment?
«1

Comments

  • dunstonh
    dunstonh Posts: 116,296 Forumite
    Name Dropper First Anniversary First Post Combo Breaker
    which says that Investment Trusts are not covered by the FSCS.

    Correct. They are not a retail investment product but a direct investment. (Caveat - packaged ITs are a retail product but not many of those around).
    Please can you reassure me - is there any chance of an Investment Trust going into liquidation and losing your investment?
    You have a theoretical 100% loss of capital with no FSCS protection. Highly unlikely by theoretically possible.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • antrobus
    antrobus Posts: 17,386 Forumite
    Audaxer wrote: »
    I have just come across this page
    https://www.rplan.co.uk/pages/help/investor-protection
    which says that Investment Trusts are not covered by the FSCS. I had assumed they were covered up to £50k, the same as fund houses are. ...

    An investment trust is a limited company. There is no FSCS protection for investments in limited companies.

    If however, a FCA firm gives you advice regarding the purchase of investment trusts, you can complain if they give you bad advice.
    Audaxer wrote: »
    ...Please can you reassure me - is there any chance of an Investment Trust going into liquidation and losing your investment?

    There is always a chance that an investment trust could buy a whole bunch of rubbish which turns out to be worthless, and you lose your investment. But then there's always a chance that any unit trust, OEIC, or whatever could buy a whole bunch of rubbish which turns out to be worthless, and you lose your investment. FSCS doesn't protect consumers from bad investments.

    The only issue with investment trusts is that they can gear up, as in borrow money to invest, and so if the they do so and the investments fall in value they can become insolvent. I think it was back in 2002 (?) that we had the split capital crisis. Some ITs did indeed go pop at that time I believe.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    First Anniversary Name Dropper First Post Photogenic
    I think your concern is misplaced, you have to look at the most likely things to happen.

    The FSCS guarantee protects you against fraud (essentially). You can still lose money in any bad fund or any good fund in a bad area.

    As said though it doesn't protect against poor investment performance . The odds that you will lose money due to a poorly performing fund or IT are most likely literally many thousands of times higher than a fraud causing a fund to collapse, where you would be covered, or an IT, where you wouldn't.

    You should concentrate on the fund or IT investment strategy rather than letting highly unlikely events drive your strategy.
  • Audaxer
    Audaxer Posts: 3,506 Forumite
    First Anniversary Name Dropper First Post
    AnotherJoe wrote: »
    You should concentrate on the fund or IT investment strategy rather than letting highly unlikely events drive your strategy.
    Fair enough, I was just asking as I had only found out. I know that a lot of investors on here use ITs so I assumed the risk was minimal. I am aware you are not covered for poor investment performance.

    I now know that in the unlikely event of a major fraud in a fund you invested in, you could claim back up to £50k under the FSCS, but in an IT you couldn't.
  • JohnRo
    JohnRo Posts: 2,887 Forumite
    First Anniversary Combo Breaker First Post
    Audaxer wrote: »
    ..so I assumed the risk was minimal.

    I might well be wrong but I think you'll probably find most folks using them accept the risk versus funds is greater. It's the structural advantages that make them attractive.

    If you accept the added risks and possible amplified volatility then they have distinct advantages longer term.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    First Anniversary Name Dropper First Post Photogenic
    Audaxer wrote: »
    Fair enough, I was just asking as I had only found out. I know that a lot of investors on here use ITs so I assumed the risk was minimal. I am aware you are not covered for poor investment performance.

    I now know that in the unlikely event of a major fraud in a fund you invested in, you could claim back up to £50k under the FSCS, but in an IT you couldn't.

    I agree, the risk is minimal. Though after watching the TV programme about Madoff the other day, it does give pause :eek:
  • Malthusian
    Malthusian Posts: 10,931 Forumite
    First Anniversary First Post Name Dropper Photogenic
    AnotherJoe wrote: »
    I agree, the risk is minimal. Though after watching the TV programme about Madoff the other day, it does give pause :eek:

    As long as your investment trusts aren't run by an absolute genius who somehow manages double-digit returns during stockmarket crashes you are probably safe.
  • bigadaj
    bigadaj Posts: 11,531 Forumite
    Name Dropper First Post First Anniversary
    AnotherJoe wrote: »
    I agree, the risk is minimal. Though after watching the TV programme about Madoff the other day, it does give pause :eek:

    though of course if you use a fund manager/ adviser then nothing can go wrong, someone like Nicola Horlick for example, oh no, hang on....
  • Audaxer
    Audaxer Posts: 3,506 Forumite
    First Anniversary Name Dropper First Post
    JohnRo wrote: »
    I might well be wrong but I think you'll probably find most folks using them accept the risk versus funds is greater. It's the structural advantages that make them attractive.

    If you accept the added risks and possible amplified volatility then they have distinct advantages longer term.
    What are the distinct advantages long term? Is it the fact that they can hold back income in good times to continue with growing dividends in bad times, or are they other advantages?
  • melbury
    melbury Posts: 13,251 Forumite
    Name Dropper First Anniversary First Post I've been Money Tipped!
    This has never crossed my mind.

    Surely investment trusts are the same as buying shares in any other company, so there is no reason why they would come under the FSCS any more than if you had bought shares in Tesco.
    Stopped smoking 27/12/2007, but could start again at any time :eek:

This discussion has been closed.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.1K Banking & Borrowing
  • 250.1K Reduce Debt & Boost Income
  • 449.6K Spending & Discounts
  • 235.2K Work, Benefits & Business
  • 607.8K Mortgages, Homes & Bills
  • 173K Life & Family
  • 247.8K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards