Split capital investment trust
Encyclopedia
A split capital investment trust (split) is a type of investment trust
which issues different classes of share to give the investor a choice of shares to match their needs. Most splits have a limited life determined at launch known as the wind-up date. Typically the life of a split capital trust is five to ten years.
In order of (typical) priority and increasing risk
The type of share invested in is ranked in a predetermined order of priority, which becomes important when the trust reaches its wind-up date. If the split has acquired any debt, debentures or loan stock, then this is paid out first, before any shareholders. Next in line to be repaid are Zero Dividend Preference shares, followed by any Income shares and then Capital. Although this order of priority is the most common way shares are paid out at the wind-up date, it may alter slightly from trust to trust.
Splits may also issue Packaged Units combining certain classes of share, usually reflecting the share classes in the trust usually in the same ratio. This makes them essentially the same investment as an ordinary share in a conventional Investment Trust.
Investment trust
An Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....
which issues different classes of share to give the investor a choice of shares to match their needs. Most splits have a limited life determined at launch known as the wind-up date. Typically the life of a split capital trust is five to ten years.
Structure
Every split capital trust will have at least two classes of share:In order of (typical) priority and increasing risk
- Zero Dividend Preference shares - no dividends, only capital growth at a pre-established redemption price (assuming sufficient assets)
- Income shares - entitled to most (or all) of the income generated from the assets of a trust until the wind-up date, with some capital protection
- Annuity Income shares - very high and rising yield, but virtually no capital protection
- Ordinary Income shares (aka Income & Residual Capital shares) - a high income and a share of the remaining assets of the trust after prior ranking shares
- Capital shares - entitled most (or all) of the remaining assets after prior ranking share classes have been paid; very high risk
The type of share invested in is ranked in a predetermined order of priority, which becomes important when the trust reaches its wind-up date. If the split has acquired any debt, debentures or loan stock, then this is paid out first, before any shareholders. Next in line to be repaid are Zero Dividend Preference shares, followed by any Income shares and then Capital. Although this order of priority is the most common way shares are paid out at the wind-up date, it may alter slightly from trust to trust.
Splits may also issue Packaged Units combining certain classes of share, usually reflecting the share classes in the trust usually in the same ratio. This makes them essentially the same investment as an ordinary share in a conventional Investment Trust.
See also
- Closed-end fundClosed-end fundA closed-end fund is a collective investment scheme with a limited number of shares. It is called a closed-end fund because new shares are rarely issued once the fund has launched, and because shares are not normally redeemable for cash or securities until the fund liquidates.Typically an...
- Income trustIncome trustAn income trust is an investment that may hold equities, debt instruments, royalty interests or real properties. The trust can receive interest, royalty or lease payments from an operating entity carrying on a business, as well as dividends and a return of capital.The main attraction of income...
- Real estate investment trustReal estate investment trustA real estate investment trust or REIT is a tax designation for a corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90% of their taxable income into the hands of investors...
- Venture Capital TrustVenture Capital TrustA venture capital trust or VCT is a highly tax efficient UK closed-end collective investment scheme designed to provide private equity capital for small expanding companies and capital gains for investors...
- Investment companyInvestment companyAn investment company is a company whose main business is holding securities of other companies purely for investment purposes. The investment company invests money on behalf of its shareholders who in turn share in the profits and losses....