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INVESTMENT TRUST
You invest in a security which gives you the right to buy a certain number of investment trust shares at a fixed price on a fixed date or series of dates or during a specified period in the future before the warrant expires at the end of a fixed period determined when it is first issued. You can buy and sell warrants like Shares on the Stock Exchange. You rarely exercise the warrant (i.e. buy the shares); to make money you aim to sell the warrant at a higher price than you bought it for. If you hold a warrant beyond its expiry, and it is not exercised, it is has no value. The value of warrants goes up and down much more quickly than the investment trust shares in which you have the right to buy. You can also buy warrants in some quoted Ordinary Shares. These may be even more risky as the performance of an individual company can fluctuate more than that of an Investment Trust.
Who can invest Anyone 18 or over.
How worthwhile Potentially good value if you like to speculate. Compare with the Capital Shares of Split Level Trust Investment Trust . You can lose most of your investment quickly if you predict investment trust share prices wrongly. If you are right you can make a lot of money in a short time. Dealing in warrants needs regular attention.
Minimum Around £1,000 to avoid minimum commission.
Maximum None.
Suitable Lump sums.
Money back When you sell the warrant before its expiry. You get the current market price which may be more or less than you paid.
Interest None usually.
Interest paid Not applicable.
Tax Any profits you make count as capital gains and are taxable. Any losses can be set against other capital gains.
Fees to pay When you buy and sell: stockbrokers' commission: Varies widely, cheaper from an on-line broker; minimum £10 to £20. Stamp duty ½% when you buy only. Some on-line brokers don't allow deals in warrants
Passbook Warrant certificate issued.
Children Unsuitable.
Risk High .
How to invest Visit the Association of Investment Trust Companies web site and Trustnet. They list managers, trust portfolios, speciality, discounts and gearing. Choose from the larger trusts of the type you want with the highest discount and gearing. Or ask a specialist stockbroker for advice, the Association also supplies a list of stockbrokers.
Where from A stockbroker who knows about warrants.
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Last updated 29 January 2002