INVESTMENT TRUST GUIDE: Investment trusts are a low cost, low risk, way of investing in shares and bonds. Here we look at how to select and buy investment trusts for savings or your pension. Investment trusts, often described as 'the best kept secret in the City', are massively overshadowed by the greater publicity given to unit trusts.

So we compare investment trusts and unit trusts before going on to look at different types of investment trust. Charges on investment trusts can be very low and we look at where best to buy them.

But there are pitfalls – investments can trade at big discounts to net asset values and split investment trusts have sometimes done badly. This guide is designed to help you understand and choose the best investment trust.

For investors willing to put in a little time getting to understand them and their quirks, investment trusts can make for a more successful long-term investment than unit trusts. This long-termist slant makes them particularly suitable for pension and retirement planning.

WHAT IS AN INVESTMENT TRUST?

An investment trust is a listed company and issues shares in the same way as ordinary companies like Marks & Spencer or BT. However, rather than manufacture widgets or provide services to customers investment trusts exist specifically to operate pooled funds for investors.

A professional fund manager, who decides which companies and which countries to invest the fund's pooled money into manages the trust on behalf of investors. Like unit trusts, by pooling their funds, investment trust shareholders benefit from economies of scale on dealing costs and (hopefully) from their fund manager's superior knowledge of investments.

They also benefit from diversification as the trust offers exposure to a large number of companies (typically 50 plus) that they could not afford to invest in themselves. This reduces the impact of a poor investment decision on the overall value of their investment.