Split Capital Investment Trusts

Some investment trusts issue more than one type of share. They are called Split Capital Investment Trusts.

The simplest "Split" is divided between capital and income shares. The capital shares receive no dividends over the life of the trust, while the income shares receive all the income generated by the whole fund. This creative bit of financial marketing can potentially be valuable because it enables private investors to select precisely the sort of investment they need. Some investors want income alone, so they can opt for 'income shares'. Other investors want growth, so they can opt for 'Capital Shares'.

At least that was the case in theory. In fact, during 2000 and 2001, events led to the start of the collapse of a number of splits. These included a fall in the the value of technology stocks, a decline in the stock market and the negative impact of 9/11.

The impact of these events on the splits sector was affected by the existence of financial gearing and the level of cross-holdings within the sector. Factor in lower new investor demand and the sector took a major hit leaving many existing investors out of pocket.

Eventually, City regulator, the Financial Services Authority, reached agreement with a number of firms to collectively pay investors £194 million in compensation.

Further information is avialble from the the Association of Investment Trust Companies (AITC) also has material available.

See Also: Online share dealing service Stockmarket Centre

Last Updated: April 2008 © Moneyextra.com

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