Investment Fund vs Trust: Difference and Comparison

Investment trusts, as well as funds, have several characteristics, the most prominent of which is that they allow investors to ‘pool’ their money with others,

allowing them to access a diverse wide range of assets throughout a single vehicle. It’s possible to claim that the resemblance ends there.

So, to better understand things, we must first comprehend the distinctions between investment funds and trusts and then compare them side-by-side.

Key Takeaways

  1. Investment funds pool resources from multiple investors to purchase securities.
  2. Investment trusts are closed-end funds with a fixed number of shares traded on a stock exchange.
  3. Investment trusts can be bought and sold like stocks, while investment funds offer daily liquidity.

Investment Fund vs Trust

An investment fund is a pooled investment vehicle that allows multiple investors to pool their money together to invest in a diversified portfolio of securities. A trust is a legal arrangement in which one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). 

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An investment fund is a pool of money from an investment group that has pooled together capital to buy assets. At the same time, each individual retains possession and management of their assets.

An investment fund offers a more extensive range of investment options, more management experience, and cheaper investment costs than a stockholder might get alone.

A financial organization that combines the funds of its investors and distributes them in a diverse portfolio of securities is known as an investment trust, sometimes a closed-end trust.

It varies from a mutual fund or unit trust in that it offers units that reflect diverse assets rather than stock in the firm.

The price of asset management company shares is determined by the value of the underlying securities and the desire for and availability of investment trust shares.

Comparison Table

Parameters of ComparisonInvestment FundTrust
MeaningA financial organization that combines the funds of its own investors and distributes them in a diverse portfolio of securities is known as an investment trust.No borrowing is allowed in open-ended funds i.e. investment funds.
Shareholder RightsShareholders of investment funds are frequently considerably more restricted than those of company shareholders.Shareholders in an investment company are also stakeholders in the firm and earn from any increase in the value of the trust’s assets.
BorrowsThe valuation of the underlying securities is connected directly to the price of a fund’s components. The cost of a unit is set once a day.
PricingThe profitability of the underlying securities, as well as market forces for the shares all influence the share price of a trust.The profitability of the underlying securities, as well as marke and the shares all influence the share price of a trust.
Type of FundInvestment funds are ‘open-ended-funds’.Trust is a ‘close-ended-fund’.

What is an Investment Fund?

An investment fund pools money from a handful of discrete investors and invests it in lucrative ventures.

Participants in mutual funds have access to a broader range of assets and alternative investments than would be accessible to a shareholder.

Because investment funds are actively managed, there is a more significant likelihood that the investment firm will be able to meet its investment objectives.

The fund issues shares, each of which reflects percentage ownership in the commodities held by the fund.

Funds are suitable for investors who don’t have a tremendous amount of money to invest but want a well-diversified portfolio, low transaction fees, and a lot of flexibility.

Individual investors don’t make judgments about how a fund’s assets should be invested when they invest in investment funds. They opt for investment funds like fees and other considerations.

A manager takes hold of the assets and funds to hold, in what amounts, and when to buy and sell them. An investment fund can be wide-ranging, including an index portfolio of stocks, the S&P 500.

While institutional investors have existed in varied incarnations for many years, the Massachusetts Investors Trust Fund is widely regarded as the industry’s oldest open-end mutual fund.

The fund, which invests in various large-cap equities, was established in 1924.

investment fund

What is Trust?

The price of the asset management company and investment trust shares is determined by the price of a particular commodity or asset and the demand for and availability of investment trust shares.

According to standard charter limitations, management has unrestricted flexibility over the portfolio in most contemporary investment trusts.

Since they issue a predetermined number of non-redeemable shares for investment, investment trusts are referred to as “closed-ended funds.”

Likefirm share, investors purchase and sell shares by trading amongst themselves on a recognized stock market.

It’s important to remember that the trustees, not the trust fund, hold the trust’s assets. On the other hand, the trust fund is not owned by anybody and is an independent legal entity.

Asset ownership is also distinguished: the trustees have legal ownership of the assets, while the beneficiaries have legal right of the asset’s benefits.

As a result, the trust fund’s assets must constantly be managed with the beneficiaries’ best interests in mind.

The profitability of the underlying securities and market forces for the shares determine the stock price of any ‘investment trust’.

The shares might be traded at a disadvantage to the value of assets (when shareholder demand is minimal) or at a discount to the value of the assets at any one moment (where investor demand is relatively high).

investment trust

Main Differences Between Investment Funds and Trust

  1. An investment fund gathers money from a massive handful of discrete firms that invest pooled funds in profitable investments, whereas a trust is a contract between two parties in which one party’s investments are transmitted to some other party.
  2. An investment fund gathers money from a huge handful of discrete firms that invest pooled relates to financial investment opportunities, whereas a trust is a contract between two parties in which one party’s securities are transmitted to some other party.
  3. Open-ended investment funds are prohibited from borrowing, whereas investment trusts are authorized to borrow funds to invest besides the allocated cash.
  4. Investment funds are open-ended funds whereas trust is a close-ended fund.
  5. In the case of investment funds, it is managed by the fund manager solely whereas, trust funds are governed by a board of directors.
Difference Between Investment Fund and Trust
References
  1. https://www.britannica.com/topic/investment-trust
  2. https://www.santander.com/en/stories/whats-an-investment-fund

Last Updated : 13 July, 2023

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