An investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies.

The name is somewhat misleading, given that (according to law) an investment "trust" is not in fact a "trust" in the legal sense at all, but a separate legal person or a company. This matters for the fiduciary duties owed by the trustees and the equitable ownership of the fund's assets.

Organization
Investors' money is pooled together from the sale of a fixed number of shares which a trust issues when it launches. The board will typically delegate responsibility to a professional fund manager to invest in the stocks and shares of a wide range of companies (more than most people could practically invest in themselves). The investment trust often has no employees, only a board of directors comprising only non-executive directors. However in recent years this has started to change, especially with the emergence of both private equity groups and commercial property trusts both of which sometimes use investment trusts as a holding vehicle.
Investment trust shares are traded on stock exchanges, like those of other public companies. The share price does not always reflect the underlying value of the share portfolio held by the investment trust. In such cases, the investment trust is referred to as trading at a discount (or premium) to NAV (net asset value).

The investment trust sector, in particular split capital investment trusts, suffered somewhat from around 2000 to 2003 after which creation of a compensation scheme resolved some problems.

One of the common misconceptions of the key differences between an investment trust and a unit trust, is that an investment trust manager is legally allowed to borrow capital to purchase shares, whereas the manager of an open ended fund may not. This is factually incorrect, both UCITS and non UCITS open ended funds can legally use gearing in exactly the same way as an investment trust, albeit there must be a risk management process in place which sets out how the leverage is measured etc. This leverage may increase investment gains but also increases investor risk.

Taxation
Provided that it is approved by HM Revenue & Customs, an investment trust is taxed in the normal way on its investment income, but its capital gains are not taxed. This avoids the double taxation which would otherwise arise when shareholders sell their shares in the investment trust and are taxed on their gains.
An approved investment trust must
•    be resident in the United Kingdom
•    derive most of its income from investments
•    distribute at least 85% of its investment income as dividends (unless prohibited by company law)
The company must not hold more than 15% of its investments in any single company (except another investment trust); must not be empowered to distribute capital gains as dividends to shareholders, and must not be a closed company.