Investment trusts are closed-ended funds that trade on the stock market. Which statement is true?

• A. They are closed-ended funds that trade at a discount or premium to NAV
• B. They are open-ended funds whose price equals NAV
• C. They have no board of directors
• D. They do not use gearing

Answer: (A)

Investment trusts operate as fixed-capital, closed-ended funds. Because a fixed number of shares is listed on the stock market, their market price is determined by supply and demand rather than by the fund’s NAV per share. This means the share price can be lower than the NAV (a discount) or higher than the NAV (a premium) at any given time. NAV per share is the fund’s total assets minus liabilities, divided by the number of shares, and it represents the value of the underlying holdings, not the price you’ll pay on the exchange.

The other statements don’t fit because investment trusts do have a governance structure with a board, they are able to use gearing (borrowing) to invest, and they are not open-ended funds whose price always equals NAV.