Comparison · Investing · 2026/27
Index Fund vs Investment Trust UK 2026/27
An index fund is open-ended and always trades at net asset value. An investment trust is a closed-ended listed company whose share price can trade at a discount or premium to NAV, and which can use gearing. This 2026/27 guide compares structure, cost and risk.
Key facts -- 2026/27
- • Index fund structure: open-ended, trades at NAV
- • Investment trust structure: closed-ended, trades at market price
- • Typical index tracker OCF: ~0.05-0.2%
- • Typical active trust OCF: ~0.5-1.5%+
- • Revenue reserve limit: up to 15% of income/year
- • Both: eligible for Stocks & Shares ISA / SIPP
Structure and Pricing
Index funds create or cancel units as money flows in or out, so you always buy and sell at the fund's net asset value. Investment trusts have a fixed number of shares trading on the stock exchange, meaning the price is set by market supply and demand and can diverge from the underlying NAV -- sometimes significantly.
This structural difference is why trusts can use gearing (borrowing to invest more) and smooth dividends via a revenue reserve -- tools not available to open-ended index funds.
Worked Example: GBP 10,000 Invested
| Item | Global index fund | Trust at 10% discount |
|---|---|---|
| Annual OCF | ~0.1% (~GBP 10) | ~0.6% (~GBP 60) |
| Exposure per GBP 10,000 invested | GBP 10,000 of NAV | ~GBP 11,111 of NAV (buying at discount) |
| Discount narrowing to 0% | N/A | Additional re-rating gain |
Illustrative only -- discounts can widen as well as narrow, and past discount behaviour does not predict future movements. Use the compound interest calculator to model long-term growth net of charges.
Side-by-Side Comparison
| Factor | Index fund | Investment trust |
|---|---|---|
| Pricing | Always at NAV | Market price, can differ from NAV |
| Gearing | Generally none | Can be used, adds risk/return |
| Dividend smoothing | No | Yes, via revenue reserve |
| Typical charges | Often lowest for trackers | Varies, active often higher |
| Complexity | Simple | More layers (discount, gearing, board) |