The short version
- ETFs and investment trusts trade on the stock market through the day. Index funds deal once, at the next valuation point after your order.
- Buying ETF units carries no stamp duty, and nor do index fund units bought from the manager. Buying shares in a UK investment trust usually costs 0.5%.
- Investment trusts can trade above or below the value of their assets, and can borrow to invest. Both add risk as well as potential return.
- None is better in every case. It depends on how you want to buy, what you'll pay on your platform and how much extra risk you're comfortable with.
Part of ETF basics. New to ETFs? Start with what an ETF is and how it works.
- 0.5%stamp duty reserve tax on buying shares in a UK investment trust
- 0%stamp duty on buying UCITS ETF units, exempt since 28 April 2014
- 10%most a UCITS fund may borrow, and only temporarily
The three side by side
All three let you own a spread of investments in one purchase. They’re built differently, and that changes how you buy them, what you pay and how the price behaves.
| Feature | ETF | Index fund | Investment trust |
|---|---|---|---|
| What it is | An open-ended fund listed on a stock exchange | An open-ended fund, such as a unit trust or OEIC | A company with a fixed number of shares |
| How you buy | From other investors on the exchange, through a platform | From the fund manager, through a platform | From other investors on the exchange, through a platform |
| Price | Through the day, kept close to the value of its holdings | Once, at the next valuation point | Through the day, set by supply and demand |
| Stamp duty when you buy | None | None when bought from the manager | Usually 0.5% |
| Can borrow to invest | Only temporarily, up to 10% of assets | Depends on the fund's rules | Yes |
An index fund here means an open-ended fund that tracks an index. An OEIC is an open-ended investment company. For its stamp duty exemption, UK law defines an ETF as an open-ended UCITS fund whose units trade on a regulated market or trading facility. An investment trust is a company whose business is investing, overseen by a board of directors.
Pricing: through the day or once a day
An ETF trades on a stock exchange while it’s open. Under ESMA’s definition, a UCITS ETF has at least one market maker. That’s a firm that acts to keep its price close to the value of what it holds.
An index fund doesn’t trade on an exchange. FCA rules say deals in these funds must be at a forward price: the price set at the fund’s next valuation, after your order goes in.
So you don’t know the exact price when you place the order. The HSBC FTSE All-World Index Fund, for example, deals daily, with its valuation at 12:00 UK time.
An investment trust also trades through the day. But its price is set by buyers and sellers, and can move away from the value of what it owns.
How you buy, and minimums
- ETF: you buy units from other investors on the exchange, through a broker or platform. ESMA’s rules note that you usually can’t sell them back to the fund directly.
- Index fund: your platform buys units from the fund manager for you.
- Investment trust: you buy shares from another investor on the stock market, like any company share.
For ETFs and investment trusts, the smallest purchase is one share or unit, unless your platform offers fractions. Index funds set a minimum, and HSBC notes that minimums may vary across distributors. Check the fund’s page on your platform.
Some platforms charge per trade on the stock market. interactive investor’s Core plan, for example, charged £3.99 a trade for UK shares, ETFs and investment trusts when I checked.
Stamp duty: the 0.5% difference
When you buy existing shares in a company incorporated in the UK, you usually pay 0.5% stamp duty reserve tax (SDRT) on electronic purchases.
Investment trusts are companies. In tax law, an investment trust is a company whose business is investing its funds to spread risk, with shares traded on a regulated market. So buying shares in a UK investment trust normally costs 0.5%.
The Association of Investment Companies, the industry’s trade body, says the same. Stamp duty is 0.5% of the purchase amount, paid when you buy but not when you sell.
ETFs are exempt. UCITS ETF units have been free of stamp duty and SDRT since 28 April 2014. Index funds are free too when you buy units from the fund manager.
Two exceptions are worth knowing. Shares in companies first listed on a UK regulated market on or after 27 November 2025 are exempt from SDRT for three years. That doesn’t help trusts listed earlier. And the rules differ for foreign companies, so a trust incorporated outside the UK may be treated differently.
The AIC has called that relief a possible first step towards abolishing stamp duty on shares. It says that would put investment trusts on a level with open-ended funds.
On £10,000, 0.5% is £50, paid once when you buy.
Discounts and premiums
An investment trust is called closed-ended because it has a fixed number of shares in issue at any one time. Its share price depends on supply and demand, not only on what it owns.
When demand is strong, shares can trade above the net asset value (NAV), the value of its assets minus its debts. That’s a premium. When demand weakens, they can fall below it. That’s a discount.
That adds a second layer of movement. A trust’s share price can fall even when its investments don’t, if the discount widens.
ETFs are designed to avoid big gaps, and ESMA’s guidelines add a safety valve. If the price strays significantly from NAV, say because there’s no market maker, investors should be able to sell directly back to the fund.
Gearing: borrowing to invest
Investment trusts can borrow money to make extra investments. This is called gearing. It magnifies gains when investments rise and losses when they fall.
UCITS funds, including UCITS ETFs, are generally barred from borrowing. Their home country can allow temporary borrowing of up to 10% of assets.
Charges
All three take a yearly charge inside the fund. An index ETF and an index fund tracking the same index can cost much the same. Vanguard’s costs document lists its FTSE 100 index unit trust at 0.06% a year and its FTSE 100 ETF at 0.09%.
Investment trusts publish an ongoing charge too. The AIC’s version leaves out performance fees, transaction costs and the cost of borrowing, so check those separately.
On top come the costs of buying and holding: the spread on ETFs and trusts, platform fees and, for trusts, the stamp duty. The ETF costs guide goes through each one.
Many investment trusts are run by a manager who chooses the holdings. Whether that is worth the extra cost is the subject of active vs passive funds: what the evidence shows.
Questions to ask yourself
None of the three is better in every case. Which suits you depends on what you value. These questions can help:
- Do you want to see the price when you buy, or are you happy with the next valuation?
- Are you comfortable with a share price that can move away from the value of the assets?
- Does borrowing to invest fit with how much risk you want to take?
- Does a one-off 0.5% on purchases matter for the amounts you’ll invest?
- What does your platform charge to buy and hold each one?
Common questions
- Is an investment trust the same as a unit trust?
- No. A unit trust is an open-ended fund you buy from the manager. An investment trust is a company with a fixed number of shares that trade on the stock market.
- Why would an investment trust trade at a discount?
- Its price is set by buyers and sellers. When demand for its shares weakens, the price can fall below the value of its assets.
- Do I pay stamp duty when I sell investment trust shares?
- No. The 0.5% is paid by the buyer, so you pay it when you buy, not when you sell.
- Can an ETF trade far from the value of its holdings?
- It’s designed not to. Market makers act to keep the price close to its NAV. If that breaks down, investors should be able to sell back to the fund directly.
- Do ETFs and index funds hold the same things?
- Often. If they track the same index, they aim to deliver its return. The difference is mostly in how you buy them and what that costs.
This page explains how these investments work. It isn't advice about what you should buy. Investments can fall as well as rise, and you may get back less than you put in. For free, impartial guidance, try MoneyHelper. Read the full disclaimer.
Sources
- Tax when you buy shares, GOV.UK
- Corporation Tax Act 2010, section 1158: meaning of "investment trust", legislation.gov.uk
- The Stamp Duty and Stamp Duty Reserve Tax (Exchange Traded Funds) (Exemption) Regulations 2014, legislation.gov.uk
- STSM042600: UK Listing Relief: overview of SDRT relief, HMRC Stamp Taxes on Shares Manual
- Stamp Duty Reserve Tax: UK Listing Relief, HM Revenue and Customs, GOV.UK
- Choosing an investment trust, Association of Investment Companies (trade body)
- What are investment companies?, Association of Investment Companies (trade body)
- Budget 2025: no stamp duty on new listings for three years, 26 November 2025, Association of Investment Companies (trade body)
- COLL 6.3: Valuation and pricing, FCA Handbook
- Guidelines on ETFs and other UCITS issues (ESMA/2014/937), European Securities and Markets Authority
- Directive 2009/65/EC (UCITS), Article 83, EUR-Lex
- HSBC FTSE All-World Index Fund monthly report, 30 September 2026, HSBC Asset Management
- Self-managed service costs and charges information, 20 August 2026, Vanguard
- ISA fees and charges, interactive investor
Facts checked 13 October 2026.