Trust shares are a way of investing in multiple companies. They are used in financial set-ups in several countries, most notably the United States and United Kingdom, though there are some differences in practice from country to country. The phrase trust shares can also refer to a company share that is held in trust, a tactic sometimes used to maximize privacy.
The concept of trust shares exists in several legal set-ups. The most prominent are the unit investment trust in the US, the investment trust in the UK, and the unit trust in several countries such as the UK and Australia. The general principles remain the same; the trust brings together money from multiple investors and puts it into multiple security investments. The idea is that investors get both the benefits of diversification, limiting the risk of a single investment going badly, and economies of scale such as the trust being able to buy and sell securities at more favorable rates as it deals in larger quantities.
The basic idea of the various set-ups is that a company is set up to buy and sell the securities. Investors then buy a share or shares, sometimes known as units, in this company. They then receive any profits from the company's investments, which acts as the return on their own personal investment. In some cases, they will be able to sell their share in the company on the open market. The exact legal situation, including how the company is classed, varies from situation to situation, as does the way the investments and returns are treated for tax purposes.
One significant difference between the set-ups is their duration. Both the unit investment trust and the investment trust are closed-end funds. This means the fund operates for a fixed duration and then liquidates, returning the investment and any profits to investors. A unit trust is an open-ended fund, meaning it continues permanently. Investors wanting to "cash in" will thus have to sell their units to another investor.
Another form of trust shares are company shares, whether from a private company or a publicly traded company, which are held in trust. This means that the registered owner of the shares holds them on behalf of somebody else. This would normally be done where somebody wants the influence over the company that comes with share ownership but does not want their connection to be public knowledge.
