Newbie question re investment trusts

wyrleyite

Hi,

I'm thinking of dipping my toes in investment trusts but would like to know more regarding costs. I can see that most have ongoing charges and some have performance fees but can someone explain how you pay for them. Do they simply take their fees and take it as an expense from running the company and this in turn reduces their performance or do they send you a bill? I'm used to investing in unit trusts but can't see how it works in practice when you buy through a broker for investment trusts.

As a side question, does anyone use iWeb for dealing in investment trusts and if so how do you rate them?

Ta muchly

le_loup

wyrleyite wrote: »

Do they simply take their fees and take it as an expense from running the company and this in turn reduces their performance

Yes, that's the way that all Investment Trusts work - as do Unit Trusts and OICS.

ermine

The Association of Investment Companies website is a good place to go for more info about how ITs work. It's always good to know as much about how something you're investing in works.

wyrleyite

le_loup wrote: »

Yes, that's the way that all Investment Trusts work - as do Unit Trusts and OICS.

Thanks :beer:

In, essence then they work exactly the same as a share. In other words, you pay your stamp duty and broker fee and then that's it until you sell.

bowlhead99

Exactly. It is a share in a company whose business is to invest in other companies. There are costs to that company of running the business, and costs to you of buying and perhaps holding(depending on your broker) the shares.

The price you have to offer someone on the stock market to buy one share in the investment trust or investment company, or are bidded to buy your shares when you want to sell, will be affected by, but not exactly the same as, the value of the underlying assets at a point in time (supply and demand). Again, just like buying any "normal" share.

atush

One of the best ways to cut costs in buying ITs is to hold them in ISAs or thru the investment trust company savings plan.

wyrleyite

atush wrote: »

One of the best ways to cut costs in buying ITs is to hold them in ISAs or thru the investment trust company savings plan.

Do the likes of iWeb allow you buy them through a savings plan as well?

EdGasket

Make sure you find out the ongoing charges of the IT before deciding to invest. Some have charges as low as 0.5% while others in excess of 2% which is a lot in a flat market, and these charges still apply if the IT is doing badly as well as in good times. That is why most IT's are priced at a discount to their assets.

Generally cheaper are Exchange-Traded funds or ETFs with typical charges from 0.2% to 1% max. Vanguard and HSBC have a range of good value ETFs.

bowlhead99

wyrleyite wrote: »

Do the likes of iWeb allow you buy them through a savings plan as well?

"The likes of" IWeb do, but IWeb specifically, don't!

If you use Youinvest for example, they let you contribute monthly to certain ITs with dealing fee of only £1.50 per purchase. Or you can often go direct to the manager and use their in-house plan that only charges stamp duty and not dealing fees (and sometimes an annual fee, sometimes not). Advantage of using an independent broker is you can build up a mix of different managers' ITs and perhaps other assets in the same ISA.

IWeb offers flat rate trading but not regular "plans" as such, so £200pm ongoing investment would be costing a fiver every month just for one holding being added to.

puk999

Possible silly question alert: How would the investment company collect their charges if none of the underlying assets generated returns?

redux

puk999 wrote: »

Possible silly question alert: How would the investment company collect their charges if none of the underlying assets generated returns?

Some take the management charge from capital, some from income, and some from a mixture.

It's fairly unlikely that a spread of several shares held will all have no dividend, but if so then I assume the charge would be against only capital.