Education and resources

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What is an Investment Company?

As its name suggests, an investment company is simply a company that makes its profits by investing. It may invest in the shares of other companies plus a range of other assets such as property and bonds.

By buying shares in an investment company, you're entitled to share in any rise in its share price or any dividends it chooses to pay out. In this way, investment companies can give investors of any size a ready-made and professionally managed portfolio of investments.

How they are structured

Listed investment companies are public limited companies or PLCs. Their shares are traded on a stock market such as the London Stock Exchange. They are required to publish regular information about their activities and their financial position. And because they are listed on a stock exchange, you can check their latest share price at any time.

Like any public limited company, an investment company must have an independent board of directors appointed by its shareholders to oversee its activities and decide its future direction.

How they invest

Every investment company has a stated investment objective. This can range from generating long-term capital growth by investing in emerging markets to delivering a regular income by investing in UK shares, or equities.

The board of the investment company employs a professional investment management team to make day-to-day investment decisions. The investment management team will put together a portfolio which could comprise anything from 50 to 500 or more different holdings. The investment team has to report regularly to the board and shareholders on their progress.

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Product profiles

Investment companies

An investment company is formed to allow its owners / shareholders to pool their funds in order to help them access a broader portfolio of investments than they might otherwise be able to do if they were to invest on their own. Investment companies are public companies, listed on a stock exchange, where investors can buy and sell shares in them in exactly the same way that they do when investing in any other public listed company. They are well established, having been around for over 150 years. An investment company will aim to generate returns for its shareholders both in terms of capital growth and dividend growth, but the relative importance of each will vary from company to company. Typically, the board of directors of the investment company will appoint an investment manager to select and manage the portfolio of investments owned by the company. Unlike most large public companies listed on a stock exchange, where pension funds and investment funds own the majority of the shares, investment company are frequently largely held by private investors.

Unlike unit trusts and most Open-Ended Investment Companies (OEICs), an investment company has an independent board of directors which makes decisions about its investment manager and monitors its performance. They answer to the shareholders and stand for re-election on a regular basis.

The benefits of an investment company:

Investment company permit private investors access to diversified portfolios of investments which can helps to spread their investment risk.
The Ordinary shares of an investment company typically convey voting rights.
Investment companies are traded on a stock exchange. The share price reflects the collective views of the market and the demand for and supply of the shares. This can lead to the shares trading below (“at a discount”) or above (“at a premium”) to the to the value of the underlying assets. If you buy at a discount, you might hope that in addition to any increase in the value of the portfolio, the discount might reduce, enhancing your return. If the discount widens / the premium reduces, then the return you receive will be lower than the return on the portfolio’s assets .
The existence of a premium / discount, particularly when compared to other similar investment companies, provides investors with an indication as to how the market collectively views the prospects of the company and the market or assets into which it invests.
Investment companies invest in a wide range of different asset classes including equities and bonds, but also they are particularly suited to investing in illiquid, long-term investments, such as property, infrastructure or private equity.
They provide the investment manager with a permanent pool of capital, which allows more of the investment capital to be invested as cash does not have to be held to fund redemptions.
Investing alongside other investors allows you to benefit from economies of scale, and be able to employ a professional fund manager to manage the portfolio on your behalf.
Investment companies can borrow to increase the size of the investment portfolio, much like a mortgage. This is referred to as gearing. The theory is that over the life of the borrowing, the return from the portfolio will more than cover the cost of the borrowing (the interest on the loan). The surplus return will accrue to the investors. Negative returns however may be increased due to the existence of gearing.
Investment compnaies do not have to distribute all the income that they receive in a year and can retain up to 15% of their income each year and place this into a reserve. Any such surplus income held can be used for smoothing purposes and allow the company to boost the dividends that they pay in years when the income generated has fallen. This provides greater certainty to shareholders that the income they receive can increase or be maintained year on year. A few investment companies have a track record of having increased their dividends in each of the last 50 years.
Investment companies will not create more shares without the express approval of their boards – and shareholders, thereby ensuring that your holding is not diluted.

To find out more about Investment Trusts (also called investment companies), please visit the Association of Investment Companies website where you will also find news and industry research.

Individual savings accounts (ISAs)

ISAs were introduced in April 1999. An ISA is a 'wrapper' which, under current legislation, allows your savings to grow free from income or capital gains tax (whatever your rate).

There are two different types of ISAs, Stocks & Share and Cash. You can only have one Stocks and Shares manager for each tax year, Aberdeen Investment Companies do not offer a cash ISA.

Find out how to invest in an ISA.

Saving for children

Everyone wants the best for their children. So why not get real investment expertise working on their behalf?

Proceeds from a children's saving plan can be used for any purpose you wish – from helping to pay for childcare to funding school fees, university costs or a deposit on a first home.

If you gift money to your child, there may be income or inheritance tax implications which you will need to consider. Although children have their own personal income tax allowances which are the same as those of adults, if the income generated is from money that was given or invested by parents, then tax will still be due upon it. See our FAQs section for more information on the tax implications of investing for children.

Whatever your ultimate savings goal, there are many great, different products on offer, and quite a lot of things to consider when saving on behalf of a child. Our FAQs on investing for children provides some useful questions and answers.

You can invest in our range of trusts through Aberdeen Standard Investment Plan for Children.

Share plans

If tax efficiency isn’t an issue – or if you’ve already invested your ISA allowance – then a Share Plan is the way for you to invest. Quite simply it buys and sells shares on your behalf using a secure nominee account. You can invest as much as you wish either in one-off lump sums or by making monthly contributions by direct debit.

Find out how to invest in the Aberdeen Standard Share Plan.

Investment companies
An investment company is formed to allow its owners / shareholders to pool their funds in order to help them access a broader portfolio of investments than they might otherwise be able to do if they were to invest on their own. Investment companies are public companies, listed on a stock exchange, where investors can buy and sell shares in them in exactly the same way that they do when investing in any other public listed company. They are well established, having been around for over 150 years. An investment company will aim to generate returns for its shareholders both in terms of capital growth and dividend growth, but the relative importance of each will vary from company to company. Typically, the board of directors of the investment company will appoint an investment manager to select and manage the portfolio of investments owned by the company. Unlike most large public companies listed on a stock exchange, where pension funds and investment funds own the majority of the shares, investment company are frequently largely held by private investors.

Unlike unit trusts and most Open-Ended Investment Companies (OEICs), an investment company has an independent board of directors which makes decisions about its investment manager and monitors its performance. They answer to the shareholders and stand for re-election on a regular basis.

The benefits of an investment company:
- Investment company permit private investors access to diversified portfolios of investments which can helps to spread their investment risk.
- The Ordinary shares of an investment company typically convey voting rights.
- Investment companies are traded on a stock exchange. The share price reflects the collective views of the market and the demand for and supply of the shares. This can lead to the shares trading below (“at a discount”) or above (“at a premium”) to the to the value of the underlying assets. If you buy at a discount, you might hope that in addition to any increase in the value of the portfolio, the discount might reduce, enhancing your return. If the discount widens / the premium reduces, then the return you receive will be lower than the return on the portfolio’s assets .
- The existence of a premium / discount, particularly when compared to other similar investment companies, provides investors with an indication as to how the market collectively views the prospects of the company and the market or assets into which it invests.
- Investment companies invest in a wide range of different asset classes including equities and bonds, but also they are particularly suited to investing in illiquid, long-term investments, such as property, infrastructure or private equity.
- They provide the investment manager with a permanent pool of capital, which allows more of the investment capital to be invested as cash does not have to be held to fund redemptions.
- Investing alongside other investors allows you to benefit from economies of scale, and be able to employ a professional fund manager to manage the portfolio on your behalf.
- Investment companies can borrow to increase the size of the investment portfolio, much like a mortgage. This is referred to as gearing. The theory is that over the life of the borrowing, the return from the portfolio will more than cover the cost of the borrowing (the interest on the loan). The surplus return will accrue to the investors. Negative returns however may be increased due to the existence of gearing.
- Investment compnaies do not have to distribute all the income that they receive in a year and can retain up to 15% of their income each year and place this into a reserve. Any such surplus income held can be used for smoothing purposes and allow the company to boost the dividends that they pay in years when the income generated has fallen. This provides greater certainty to shareholders that the income they receive can increase or be maintained year on year. A few investment companies have a track record of having increased their dividends in each of the last 50 years.
- Investment companies will not create more shares without the express approval of their boards – and shareholders, thereby ensuring that your holding is not diluted.
To find out more about Investment Trusts (also called investment companies), please visit the Association of Investment Companies website where you will also find news and industry research.
Individual savings accounts (ISAs)

ISAs were introduced in April 1999. An ISA is a 'wrapper' which, under current legislation, allows your savings to grow free from income or capital gains tax (whatever your rate).

There are two different types of ISAs, Stocks & Share and Cash. You can only have one Stocks and Shares manager for each tax year, Aberdeen Investment Companies do not offer a cash ISA.

Find out how to invest in an ISA.
Saving for children

Everyone wants the best for their children. So why not get real investment expertise working on their behalf?

Proceeds from a children's saving plan can be used for any purpose you wish – from helping to pay for childcare to funding school fees, university costs or a deposit on a first home.

If you gift money to your child, there may be income or inheritance tax implications which you will need to consider. Although children have their own personal income tax allowances which are the same as those of adults, if the income generated is from money that was given or invested by parents, then tax will still be due upon it. See our FAQs section for more information on the tax implications of investing for children.

Whatever your ultimate savings goal, there are many great, different products on offer, and quite a lot of things to consider when saving on behalf of a child. Our FAQs on investing for children provides some useful questions and answers.

You can invest in our range of trusts through Aberdeen Standard Investment Plan for Children.
Share plans

If tax efficiency isn’t an issue – or if you’ve already invested your ISA allowance – then a Share Plan is the way for you to invest. Quite simply it buys and sells shares on your behalf using a secure nominee account. You can invest as much as you wish either in one-off lump sums or by making monthly contributions by direct debit.

Find out how to invest in the Aberdeen Standard Share Plan.

Frequently asked questions

Investment Companies

How are investment companies regulated?

Investment Companies are quoted companies listed on the London Stock Exchange with Boards of Directors; they are subject to the listing rules of the UK Listing Authority established under the Financial Services and Markets Act. Investment Companies are also subject to the Companies Act 1985, as amended. The conduct of investment managers to promote packaged products (ISA, Share Plans) with underlying investment companies investments, are regulated by the Financial Conduct Authority in the United Kingdom.

What is the difference between an onshore investment company and an offshore investment company?

They are both closed end investments quoted on the London Stock Exchange offering shareholders a specific investment objective from a diversified portfolio of investments. There are some differences in tax treatments: the Channel Islands based funds generally issue dividends gross; whereas UK investment companies, as equities, issue dividends net. Both are eligible for an ISA. One important difference is in investment limits: an onshore company cannot invest more than 15% of its gross assets (at the time of investment) in any one single holding, whilst no such limit applies to the Channel Islands-registered companies.

What does gearing mean?

Unlike unit trusts, investment companies can borrow money and invest the proceeds. This will increase returns to investors in a rising market (and vice versa in falling markets). This is known as financial gearing. A gearing factor of 120 means that on a company with equity of £100 million it has £20 million of debt (bank borrowings).

There is also structural gearing, which is normally a term applied to split capital or multi-class investment companies. In a simple company, typically each class of share is entitled to either all the income from the underlying portfolio or all the capital growth. If each class of share was issued in a 50:50 proportion, the income share could be said to have double gearing. Given that a rise in the portfolio would result in a disproportionate rise in the entitlement of each share class, the valuation tools used to analyse structurally geared investment companies are different. Typically analysts on income shares look for hurdle rates (how much the underlying assets have to grow each year for investors to get their stake back), and redemption yields (annual yield on the company to wind up).

How many investments are held within an investment trust portfolio and how are they managed?

Typically anything from 50 to 100 shares. The Fund Manager must have regard to the objective of the trust. To that end the underlying stocks are bought or sold to deliver either capital growth or income.

How actively are investment portfolios managed?

The "portfolio turnover" (how frequently shares are bought and sold) varies from fund to fund. Technology portfolios may get turned over more quickly than, say, a fund investing in convertibles.

Many of the terms, used in relation to the performance of investment companies, are technical in nature. How do I find out more?

You will find many of the technical terms defined in the Glossary. If you are uncertain, you should consider taking independent financial advice.

What is the spread for an investment company and who actually sets this, also what is the standard spread? And does this spread include the government stamp duty or not?

The spread is the difference between the bid price (the price you receive when you sell shares) and the offer price (the price you pay to buy shares). The spread depends on supply and demand and is set by marketmakers. It does not include government stamp duty.

What is the mid price?

It is the average of the closing buy and sell prices. The underlying investments of an investment company are valued at the previous day's closing mid prices.

How are dividend dates and rates calculated and by whom?

Dates are set, ideally, to provide a regular spread of income and are most likely on a quarterly basis. The amount of the dividends will depend on the underlying portfolio and the objective of the company.

Is the discount/premium of a share calculated on its, mid price/bid price/ or offer price?

All are calculated with reference to the previous closing mid price.

What service does the company secretary perform for an investment company?

The company secretary co-ordinates all aspects of the company to ensure that it complies with its legal and financial reporting including any circulars, report and accounts, interim reports; convening board meetings and minutes, as well as liaison with the Board and external advisers.

What service does the Board of Directors for a company perform?

The Board is responsible to shareholders; it oversees the external relationships, principally the fund management relationship, to ensure that the company's objective is met.

What role do the Registrars perform?

The Registrars maintain a register of shareholders and warrant holders.

Investing for children

Two ways to invest

Children cannot hold investment trust shares in their own name until they are 18 years old. However, adults can hold them for a child in two ways:

1. Designated account

Under this option, the shares are bought in your name, but designated for the child, by adding their name to the designation field on the application form. Designation allows you to retain ownership of the shares, with the option – but not the obligation – to transfer them to the child when they reach their 18th birthday. Under this option, parents may be taxed if the investment generates income of more than £100 per annum (see right).

2. Bare trust

This is a legal trust that is set up which specifies the child as beneficial owner of the shares. With a bare trust, you have no rights to the shares, although you can retain legal control as a trustee until the child is 18 – at which point the shares are automatically transferred into the child’s name.

You should talk to a solicitor about setting up a bare trust as Aberdeen does not offer this facility.

Children and tax

Investments held in a designated account may have implications for the donor. Seek professional tax advice to learn more.

Income tax

If you designate a plan for a child, the plan is taxed as your own.

Inheritance tax

Money held in a designated account is not treated as a gift and therefore remains within your estate for inheritance tax purposes.

Capital gains tax

Transferring a designated investment to a child when they reach 18 may be treated as a disposal for capital gains tax purposes. You may have to pay tax on rises in the value of the investment.

Do you definitely wish the child to take ownership of the investment at age 18?

Yes

Set up a Bare Trust

Tax treatment

Investment is taxed in the child’s name

Ownership

Investor loses all legal rights to the investment
Investment transferred to child at 18

Access

Cannot be touched until the child is 18

How

Can be accessed before the child is 18

Set up a Designated Account

Tax treatment

Investment is taxed in the investor’s name

Ownership

Investor retains ownership
Transfer to the child at age 18 is optional

Access

Can be accessed before the child is 18

How

Can be accessed before the child is 18

ISAs

What is an ISA?

An ISA is a tax-efficient scheme for saving. You do not pay Capital Gains Tax or income tax on any profit made from an ISA. The Government introduced ISAs in 1999 as a replacement for PEPs and TESSAs.

Please remember that the tax benefits of ISAs are dependent upon individual circumstances and may not be maintained.

Who can invest in an ISA?

Anyone aged 18 or over may invest in an ISA, provided that they are resident in the UK for tax purposes. This includes members of the armed forces and Crown employees serving overseas and their spouses and civil partners. ISAs may not be taken out in joint names.

Are there different types of ISA?

Yes, there is the option of a Cash or Stocks and Shares ISA.

In a Stocks and Shares ISA you can invest up to £20,000 for the 2018/2019 tax year.

You can only have one Stocks and Shares manager for each tax year, Aberdeen Standard Investment Companies do not offer a cash ISA.

What types of ISA does Aberdeen Standard offer and how much can I invest?

Aberdeen Standard offers the Stocks and Shares ISA. If you invest in the Aberdeen Standard Investment Company ISA you can invest up to £20,000 for the 2018/2019 tax year.

How long will I have to keep my investment for?

There is no minimum period that you must hold your ISA for. Although ‘Stocks and Shares’ ISAs are seen as medium to long term investments, you may sell them at any time.

Does Aberdeen Standard offer CAT Standard ISAs?

The Government has set CAT Standards for ISA. CAT stands for fair Charges, easy Access and decent Terms. We do not offer CAT standard ISAs for the following reasons:

There is a danger that the CAT-mark is perceived as a guarantee
There is no scope for the payment of independent financial advice. We believe this to be vital, especially for inexperienced investors

Although we can't offer financial advice, our Investor Helpline is here to answer any questions. If you need personalised guidance, we strongly advise that you speak to a qualified financial adviser.

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