Investment trusts may have won the publicity war but, says Philip Warland, the director general of the Association of Unit Trusts and Investment Funds, unit trusts have won the battle for investors' savings. The popular investment trust savings plans last year attracted pounds 175m from private investors, after pounds 250m in 1994. Total net investment in unit trusts, meanwhile, was close to pounds 7bn.
A lot of unit trust money comes from institutional purchases by life insurance companies but the figures do highlight the difference in scale between the two types of investment funds. Investors hold a total of pounds 113bn in unit trusts. The investment trust industry manages about pounds 45bn, much of it in highly specialised international funds run mainly for City institutions.
Unit and investment trusts are funds that pool investors' money as a means of spreading risk across a portfolio of shares or other investments that is, typically, much wider than a typical small investor could afford to own. Both offer the benefit of full-time professional investment management.
But the big difference is that unit trusts are open-ended funds divided into units, while investment trusts are closed-ended companies that issue their own shares.
Open-ended means unit trust managers can create or cancel units in their funds according to fluctuating demand from investors. The unit price should always reflect directly the value of the underlying investments.
Investment trusts have a fixed number of shares - hence closed - the price of which will be determined by changes in demand, aside from the performance of the underlying investments. The value of the trust's investments is separately measured by net asset value (NAV).
It is possible for an investment trust's share price to fall despite a rise in the value of its investments. Trust shares generally trade at a discount to their NAV.
The share price/NAV issue means investment trusts are riskier and more difficult for private investors to understand. However, investment trusts, being closed-ended, allow their managers to concentrate on looking after the money, without having to worry too much about inflows and outflows from investors.
Unit trusts run the risk that a sudden flood of redemptions will destabilise the fund, and force the manager to sell investments to meet investors' demands for cash. The danger is that unit trust investors will demand their money in a falling market - when the easiest shares to sell will be the trust's best investments. This could damage the fund's performance.
Supporters of investment trusts claim they have an advantage in being able to borrow money to make further investments. But borrowing (or "gearing") can also increase the risks.
So which to choose? Mr Warland says it is difficult to put a cigarette paper between the latest performance figures. Investors will have to select on other grounds. The less experienced are likely to continue to favour the simpler unit trusts.