If you’ve decided to buy some investment trusts for your portfolio, there are a number of ways you can do this. The best option for you will depend on several factors, including how much choice you are looking for; how you intend to invest – using a lump sum, or with regular monthly payments; and whether you’d rather have all your investments on one platform or not.
Unlike open-ended funds, investment trusts are traded on the stockmarket, so you can buy them using a stockbroker, or using an online investing platform. If you already have a broker, then you should be able to buy the investment trust you are eyeing up using their platform.
This will involve paying a trading fee, plus the usual 0.5% stamp duty chargeable on shares, and possibly other charges on top of this (see below). When choosing a broker, consider the fees that you’ll pay, but also take into consideration other factors, such as the user-friendliness of the platform and their customer service record (the cheapest providers aren’t always the ones that provide the best customer satisfaction, though it depends on your priorities).
Alternatively, if you know which trusts you want to invest in, then it can be cheaper – particularly for regular investors – to go directly to an investment company, but, as we point out in the column on the right, this will obviously limit your choice of trusts.
If you haven’t yet used up your £15,240 individual savings account (Isa) allowance for the year (which runs out for this tax year on 6 April), you can also buy investment trusts through your Isa. This will allow you to avoid capital gains tax (CGT) on any gains made (bear in mind that there is an annual £11,100 CGT allowance). You will not have to pay tax on dividend income received on investment trusts held in the Isa.
Do note that there will typically be an administration fee for opening an Isa wrapper with the platform or provider of your choice – we look at the costs below and in the column on the right. Also remember – if you plan to go direct – that you can only open one stocks and shares Isa per year (though you can open a new Isa with a different provider each year).
Should you go direct?
It is possible to buy many investment trusts directly from the investment trust provider. Many investment companies charge no trading fees if you are investing in their own trusts, which means it can make sense to go direct, particularly for regular investors. Several well-known investment companies offer this option, and it can provide a straightforward way of setting up an inexpensive drip-feed investment plan, for example.
Aberdeen Asset Management offers the Aberdeen Investment Trust Isa. There is a minimum monthly investment of £100, and a minimum lump-sum investment of £1,000, plus an annual charge of £24 (plus VAT), and a £15 (plus VAT) exit fee per sale.
Foreign & Colonial Investment Trust offers an Isa that allows you to invest in its range of 11 investment trusts. You can invest as little as £50 per month initially, or put in a lump sum of £500. The annual charge is £60 plus VAT, and there is a 0.2% dealing charge on both sales and purchases.
A JP Morgan Isa gives you a choice of more than 20 investment trusts, all offered by JP Morgan Asset Management. The company levies an annual account charge of 0.1% of the value of the investment trusts held within your Isa. There is no charge for buying JP Morgan investment trusts via a regular savings plan.
Finally, Baillie Gifford offers an Investment Trust Isa, with a flat annual management charge of £32.50 plus VAT. You can set up a monthly investment from a minimum of £100, or a lump sum from £2,000. Or you can invest in BG’s investment trust share plan from £30 a month.
Which platform is right for you?
Hargreaves Lansdown (HL), the UK’s largest fund supermarket, is very popular with MoneyWeek readers, judging from the results of our latest online trading supplement. As with many platforms, HL’s dealing charges vary depending on how frequently you trade. If you carry out up to nine trades per month, a deal in the following month will cost you £11.95.
This is cut to £5.95 when you’ve carried out 20 or more trades. Holding investment trusts within HL’s Vantage Fund & Share Account is free, while there is a 0.45% charge to hold investment trusts in the Vantage Isa or Sipp (capped at £45 a year in the Isa, or £200 in the Sipp). You can save regularly into FTSE 350 trusts for £1.50 per deal.
AJ Bell Youinvest is also popular with MoneyWeek readers. When buying investment trusts through AJ Bell, you will pay nothing to set up your account, but will pay £9.95 for buying and selling trusts. As with HL, the fee falls the more frequently you trade. You can also drip-feed money into investment trusts as part of a regular investment plan, with a minimum investment of £25 a month, again at a charge of £1.50 per investment.
The Share Centre offers two pricing options for dealing, depending on trading frequency. The standard dealing fee is 1%, with a minimum of £7.50. If buying via an Isa, you will pay a monthly administration fee of £4; 1% per deal commission; 0.5% for regular investing, and 0.5% for automatic dividend reinvestment. If you choose to go through Fidelity, investment trust trades incur a charge of 0.1% per deal. The fee for holding investment trusts is capped at £45 per year, no matter the size of your holding. (Note that Fidelity no longer offers individual share dealing.)
In terms of customer service, both HL and AJBell score highly according to research firm Platforum, while the Share Centre was less impressive. Finally, keep in mind that although platforms reward you for frequent trading, this is not a cost-effective strategy in the long run – trading too frequently ends in tears for the vast majority of investors.