Investor Education Centre > Income Producing Investments > Income trusts: How they work & why you should consider investing
Income trusts: How they work & why you should consider investing in them
With more investment opportunities out there than ever before, investors are looking for profitable and reliable options that meet their immediate income needs and their long-term portfolio goals. While trust funds are often associated with the management of family assets and structural inheritances, any individual or company investor can benefit from a publicly traded income trust. Income trust managers and investment schemes often work with trusts in order to build diverse portfolios and generate a steady and reliable stream of income.
What is an income trust?
An income trust holds and distributes income-producing assets, with the definition of a trust based on the relationship between a trustee and its beneficiaries. Because these personal or commercial investments generate income straight away, they can be a great alternative to start-up or growth investments that may take a while to produce income. Income trusts can be structured in many ways, either as a personal trust fund or a publicly traded commercial trust.
A personal income trust, commonly known as a trust fund, is a private investment tool that involves a three-way relationship between a trustor, a beneficiary, and a trustee who manages the funds and deals with investment management and administration responsibilities.
A publicly funded income trust can be bought and sold on financial markets, and is commonly managed by investment schemes. Income trust corporations are registered and commonly known as real estate investment trusts (REIT). A REIT's portfolio is typically focused on income distribution through equity or mortgage investments, including residential and commercial property. Along with investment and real estate trusts, there are also royalty or energy trusts, and dedicated business trusts based on the conversion of stock equity.
How does an income trust function?
An income trust is typically supported through property loans and other investments, with trust income distributed by the trustee as defined in the trust deed. The deed itself will define what is distributable income and what is not, with steady distributions generally paid monthly, quarterly, or annually depending on the trust in question. Working with a managed investment firm is highly beneficial in this regard, as a dedicated client distribution manager is able to offer more regular and transparent income distributions as well as connecting you with other advantages.
Benefits of investing in an income trust
1. Regular income distribution. An income trust provides a regular income stream, with some investment funds able to offer monthly distributions directly to your nominated bank account.
2. Re-investment opportunities. Because they are based around income, trusts make it easy for investors to re-invest their distributions and take advantage of new opportunities.
3. Flexible terms. Depending on the fund in question, it may be possible to choose between multiple investment time frames in order to find the perfect solution for your lifestyle.
4. Tax advantages. Some income trusts provide tax advantages for solo investors and companies. Trusts themselves may also receive tax benefits, which often leads to higher valuations and greater distributions over time.
This website contains general information only and is not intended to provide any person with financial advice. It does not take into account any person's (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making investments.