Closed-ended Funds
These are investment funds which have a limited number of shares.
Investment trust companies are closed-ended funds. This means that when the company was established a fixed number of shares was issued. These shares are traded on the Stock Exchange and their prices will fluctuate from day to day according to demand and supply.
This differs from unit trusts , which are open-ended funds , because the number of units in issue will vary from day to day.
This is because (strictly-speaking) when investors want to buy new units, the unit trust management company creates them. And when investors want to sell, the unit trust manager redeems them. If the manager is faced with a lot of people wanting to redeem their units he will be forced to sell some of the assets in the fund to repay them.
In an investment trust, the investor - who is also a shareholder - simply sells through the stock market to another buyer, leaving the underlying fund unaffected.
Some fund managers prefer managing investment trusts while others like unit trusts. In the case of an Investment Trust, the manager can 'get on and do his job' without needing to worry about a sudden crop of redemptions which might force him to sell some of his assets. This can be helpful in markets where it is difficult to buy and sell shares, such as emerging economies or venture and development capital.