The name is somewhat misleading, given that (according to law) an investment "trust" is not in fact a "trust" in the legal sense at all, but a separate legal person or a company. This matters for the fiduciary duties owed by the trustees and the equitable ownership of the fund's assets.
Investors' money is pooled together from the sale of a fixed number of shares which a trust issues when it launches. The board will typically delegate responsibility to a professional fund manager to invest in the stocks and shares of a wide range of companies (more than most people could practically invest in themselves). The investment trust often has no employees, only a board of directors comprising only non-executive directors. However in recent years this has started to change, especially with the emergence of both private equity groups and commercial property trusts both of which sometimes use investment trusts as a holding vehicle.
Investment trust shares are traded on stock exchanges, like those of other public companies. The share price does not always reflect the underlying value of the share portfolio held by the investment trust. In such cases, the investment trust is referred to as trading at a discount (or premium) to NAV (net asset value).
One of the key differences between an investment trust and a unit trust, is that an investment trust manager is legally allowed to borrow capital to purchase shares. This leverage may increase investment gains but also increases investor risk.
The first investment trust was the Foreign & Colonial Investment Trust, started in 1868 "to give the investor of moderate means the same advantages as the large capitalists in diminishing the risk of spreading the investment over a number of stocks".
Split Capital Investment Trusts 
"Traditional" investment trusts normally issue only one type of share (ordinary shares) and have a limited life. Split Capital Investment Trusts (Splits) have a more complicated structure. Splits issue 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.
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.
Real estate investment trusts 
In the United Kingdom, REITs are constituted as investment trusts. They must be UK resident and publicly listed on a stock exchange recognised by the Financial Services Authority. They must distribute at least 90% of their income.
Provided that it is approved by HM Revenue & Customs, an investment trust is taxed in the normal way on its investment income, but its capital gains are not taxed. This avoids the double taxation which would otherwise arise when shareholders sell their shares in the investment trust and are taxed on their gains.
An approved investment trust must
- be resident in the United Kingdom
- derive most of its income from investments
- distribute at least 85% of its investment income as dividends (unless prohibited by company law)
The company must not hold more than 15% of its investments in any single company (except another investment trust); must not be empowered to distribute capital gains as dividends to shareholders, and must not be a closed company.
See also 
- Consumer Financial Education Body: moneymadeclear website
- "Investment Trusts". Your Money. The Motley Fool. 13 March 2006.
- Adams, Andrew A (October 2004). The Split Capital Investment Trust Crisis. John Wiley & Sons. ISBN 978-0-470-86858-4.
- Carlisle, James (30 October 2002). "The Lesson From The Split Capital Debacle". Market Comment. The Motley Fool.
- "Split Capital Investment trusts". Treasury Select Committee. House of Commons. 5 February 2003.
- "History". Foreign & Colonial Investment Trust. Retrieved 2008-08-20.
- Davies, Rob (6 June 2001). "Explained: Zero Dividend Preference Shares". Specials. The Motley Fool.
- Carlisle, James (1 September 2005). "Understanding ZDPs". Fool's Eye View. The Motley Fool.
- Income and Corporation Taxes Act 1988, Section 842
- HM Revenue & Customs Manuals, para CTM47110
- "Association of Investment Companies".
- "Trust Online - Investment trust news from Baillie Gifford.".