What Is An Investment Trust Savings Scheme?

Almost every company now offers their own Investment trust savings scheme, but in relation to the long life of this sector, this is a relatively new development.

Foreign and Colonial was the first company to start such a scheme enabling direct investment in 1984. As has often been the case, the innovation of Foreign and Colonial (F&C) has been followed by the rest of the market.

Most management companies now offer savings options for private investors. These generally allow regular monthly savings by direct debit from £25 per month. Lump sums as small as £250 are also usually accepted. Depending upon the class of share being bought, dividend reinvestment options are often available.

Since most investment trusts are quite staid operations, these schemes offer investors the opportunity to gain some stock market exposure (and sometimes by taking less risk than with other investment vehicles) for limited resources and at limited cost.

For UK residents, an investment trust can be saved into from the tax advantaged ISA. Under the old PEP regulations, many trusts did not qualify. However, removal of dividend tax credit repayment in 2004 means that there are generally few benefits to basic rate tax payers.

As a way of rewarding long term, regular savers and attracting more investment business in a competitive market, many Investment trust savings schemes shave their purchasing costs to the bone. Some managers do not actually charge to buy or sell through their own scheme. More usually though, a fee of between 0.2 percent and 1 percent is payable. Government stamp duty - currently 0.5 percent at the time of writing - is also payable at purchase.

Although most private investors are not super-rich, there are some real advantages to having large numbers of shares held by the general public. Firstly, they help to ensure there is regular demand for the shares every month which over time can help substantially to maintain the share price (this helps the fund manager to do keep his job!).

Secondly, the average private investor never actually votes on any recommendations in the annual report at the annual general meeting. Therefore, they do not get in the way of the big financiers that run the fund (this helps the managers to do their job!).

Thirdly, it is very expensive to send bulky mailings by post to tens or hundreds of thousands of private investors. While this is obviously a cost that the trust must bear every year, it is an active deterrent to a hostile takeover since the agressor may be less willing to send lenders to the masses - especially when they know that the majority will not even be opened!

To read more information, please also visit:

What Is An Investment Trust?

What Are The Investment Trust Sectors?

Learn Some Background Investment Trust Information

How Does Investment Trust Net Asset Value Work?

How Do Investment Trust Share Buybacks Work?

How Much Are Investment Trust Annual Charges?

What Are The Different Investment Trust Share Classes?