Investment Funds & Trust?

ricky.patel89

Sorry if this is a stupid question but could someone be able to explain the difference between an Investment trust and an Investment Fund?

Thanks.

Edit: My Dad has been paying into a Scottish Widow with profit policy for the last 20 years, would this be considered as a good investment, it seems to be quite diverse in its investment, as they invest in equities, property, gilts, corporate bonds and hold cash.

Kalahary

www[dot]fool[dot]co[dot]uk/Your-Money/guides/Unit-Trusts-And-OEICs.aspx

and

www[dot]fool[dot]co[dot]uk/Your-Money/guides/Investment-Trusts.aspx


I'm sorry I can't put them as direct links. Fill in the dots.

xrjtg

In summary, an Investment Trust is a registered company that exists solely for the purposes of managing the initial pot of money they raised when the company floated. The only way to get exposure to the Trust's investments is to buy shares in the company from another investor, which may trade above or below their share of the value of the underlying investments. Some Trusts have a fixed life and wind up and distribute the money to shareholders after a number of years, whereas others are ongoing.

Unit trusts and OEICs are not companies themselves, but are run by companies, who create and destroy units as people want to buy or sell them.

In both cases the management team make their money by taking a cut of the money invested.

ricky.patel89

Ok thanks for that, so what would the Scottish Widow with profit policy be considered as? Is it any good?

xrjtg

I always think of with profits policies being slightly different from either unit trusts or OEICs, but I've never really looked into how they're structured because I accept the received wisdom that they're not worth looking at today. I suspect they're unit-linked though, in that your money purchases a certain number of units, each of which changes its value and receives payments in the same way as everybody else's units.

dunstonh

what would the Scottish Widow with profit policy be considered as?

If its a unitised with profits fund then it will either be a life fund or a pension fund. If its a conventional with profits fund then it will either be a life fund or a pension fund. I dont believe any insurer makes their with profits fund available in unit trust or investment trust form.

Is it any good?

Some Scot Wid products up until 1995 did often have guarantees on the WP fund (mainly pensions). If there are guarantees then they can be valuable. If there are not, then its an old product/fund that is likely to be obsolete by todays standards.

ricky.patel89

He gets a report every year with a guarantee on it, it matures in 2014, he's been contributing £100 pm since 1994.

Reaper

A typical with profits fund (though there are variations) will have a sum (bonus) added to it each year then normally a larger amount in the final year.

They used to be very popular as they were percieved to be safer because once the sum has been added to the pot it is never taken away again. However they have rather fallen out of favour as there is lots of scope for the company running it to do as they please. When the stock market is low they impose penalties on early withdrawals plus they have a tendancy to only give small annual increases and a big termination bonus at the end instead which might vanish if they have a bad year. For that reason I always prefered unit linked policies which are more transparent, even if they can fall in value.

Are you asking the question because you are wondering whether to keep it going? If so we don't know the details but in most cases when you are that close to the end it is worth continuing.

EDIT: I just had a look and I see Scottish Widows do a lot of unitised With Profits. If it is one of those then my description above does not apply.