Investment Trust: What It Is and How It Works for Everyday Investors

When you hear investment trust, a pooled investment vehicle that buys and manages a portfolio of assets like stocks, bonds, or real estate, often structured as a closed-end fund. Also known as closed-end fund, it investment company, it raises a fixed amount of capital through an initial offering and trades on stock exchanges like a stock. Unlike mutual funds that issue and redeem shares daily, an investment trust keeps its share count stable—meaning its price can swing based on supply and demand, not just the value of its holdings. This makes it different from most funds you’ve heard of, and it’s why some investors prefer it for long-term growth.

Investment trusts are managed by professional teams who decide what to buy and sell, so you don’t have to pick individual stocks. They often hold a mix of domestic and international assets, making them a simple way to diversify your portfolio without buying dozens of funds. Many focus on specific sectors like energy, healthcare, or emerging markets, giving you targeted exposure without the complexity. Because they’re traded on exchanges, you can buy and sell them anytime during market hours—just like a stock—which gives you more control than traditional mutual funds.

They’re different from mutual funds, open-ended funds that issue new shares as investors put money in and redeem shares when investors cash out. Mutual funds always trade at their net asset value (NAV), while investment trusts can trade at a premium or discount to NAV. That means you might pay more or less than the actual value of the assets inside, depending on investor sentiment. Some trusts use leverage—borrowing money to buy more assets—which can boost returns but also increases risk. Not all trusts do this, but it’s something to check before investing.

They’re also not the same as exchange-traded funds (ETFs), passively managed funds that track an index and trade like stocks. Most ETFs are designed to copy a benchmark like the S&P 500. Investment trusts are usually actively managed, meaning a fund manager tries to beat the market. That can mean higher fees, but also the chance for better returns—if the manager knows what they’re doing. You’ll want to look at past performance, expense ratios, and whether the trust has consistently outperformed its benchmark.

Who uses investment trusts? Often, long-term investors looking for income—many pay regular dividends—and those who want exposure to hard-to-reach markets like private equity or infrastructure. They’re popular in the UK and Europe, where they’ve been around for over 150 years. In the U.S., they’re less common but still used by investors who want active management without the high minimums of hedge funds.

If you’re thinking about adding one to your portfolio, check the discount or premium it’s trading at, the manager’s track record, and whether the underlying assets match your goals. Don’t just chase high yields—look at the stability of the portfolio and how often dividends have been cut. Some trusts have weathered market crashes better than others because they hold solid, cash-flowing assets.

Below, you’ll find real-world breakdowns of how these funds work, what to watch out for, and how they fit into a modern investment plan—whether you’re just starting out or already managing a portfolio. No jargon. No fluff. Just what you need to know to decide if an investment trust makes sense for you.