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Trust stocks are a way to invest in multiple companies. They are used in financial environments in a number of countries, most notably the US and the UK, although there are some differences in practice from country to country. The phrase trust deeds can also refer to a company stock that is held in trust, a tactic sometimes used to maximize privacy.
The concept of trust shares exists in various legal configurations. The most prominent are the unit investment fund in the United States, the investment fund in the United Kingdom, and the investment fund in several countries, such as the United Kingdom and Australia. The general principles remain the same; The trust pools money from various investors and puts it into various security investments. The idea is that investors reap the benefits of diversification, limiting the risk that a single investment will go wrong, and economies of scale, such as the trust being able to buy and sell securities at more favorable rates when they are traded in larger quantities.
The basic idea of the various setups is that a company is formed to buy and sell the securities. Investors then buy a share or shares, sometimes known as units, of that company. They then receive all profits from the company’s investments, which acts as a return on their own personal investment. In some cases, they will be able to sell their stake in the company on the open market. The exact legal status, including business classification, varies from situation to situation, as does how investments and income are treated for tax purposes.
A significant difference between the settings is the duration. Both the unit investment fund and the mutual fund are closed-end funds. This means that the fund operates for a fixed term and is then liquidated, returning the investment and profits to investors. A mutual fund is an open-ended fund, which means that it continues permanently. Therefore, investors who want to “earn” will have to sell their units to another investor.
Another form of trust stock is company stock, either in a private company or a publicly traded company, that is held in trust. This means that the registered owner of the shares owns them on behalf of someone else. This would normally be done when someone wants the influence over the company that comes with ownership, but doesn’t want their connection to be public knowledge.