Invest with these income trusts and you can receive dividends at a bargain price

National Savings & Investments (NS&I) has largely avoided controversy in its 162-year history.

But the Treasury-sponsored institution has put banks to shame – and left retail investors weighing their options – with the launch this month of its guaranteed growth bonds and guaranteed income bonds.

Both pay a flat rate of 6.2 percent – ​​better than anything available from the High Street bank names. In addition, a 100 percent guarantee covers every cent entrusted to NS&I. You can protect some of your money with this safety-first option, allowing you to explore more adventurous long-term income opportunities.

Some of these are in the investment trust sector, which also has its roots in the Victorian age of thrift.

Currently, some income trusts offer dividend yields of more than 4 percent. Partly due to higher interest rates, their share prices are well below the value of their net assets, making them an attractive growth prospect.

If a trust has a 10 per cent discount, you get £1 worth of shares for 90p. This could turn out to be a bargain, if you’re ready for a gamble.

Nick Wood, head of fund research at asset managers Quilter Cheviot, points to Murray Income Trust, which is currently trading at a discount of 9.04 per cent, with a yield of 4.6 per cent.

He said: ‘The trust, which has just celebrated its 50th consecutive year of dividend increases, invests in higher quality UK companies. Performance has been slightly weaker over the last three years, but we are confident that manager Charles Luke will perform well going forward as our home market looks relatively cheap.”

Diverse Income represents a new bet on a revival of the UK market. The trust, which yields 5 per cent and has a discount of 8.11 per cent, includes a mix of companies including £18.75bn supermarket giant Tesco and £166m travel company Hostelworld.

In the news: This week Hipgnosis said it would sell some catalogs

Its managers, Gervais Williams and Martin Turner, believe the prospects for the trust’s strategy are the best in thirty years.

‘Alternative’ income funds that invest in areas such as ‘big box’ logistics, infrastructure projects, pop music rights and renewable energies have been particularly hard hit by interest rate rises.

As a result, some are getting discounts of 30 percent or more. Wood cites the example of the International Public Partnerships Trust, which invests in high-end infrastructure projects in Britain, the US, Australia and Europe, some of which generate inflation-linked income.

He says: ‘This trust – at a 17 percent discount – is among our highest beliefs. The return is just over 6 percent.’

The depth of the cuts has led to rumors of trust mergers that could limit the cuts.

There is also speculation about bids. The £460 million Round Hill Music Royalty trust, which owns the rights to the hits of Alice Cooper, Bruno Mars, Louis Armstrong and others, is being acquired by Alchemy, an American company.

The deal led to a 61 percent increase in Round Hill Music’s price. Some observers claim the next target could be the £1.2 billion Hipgnosis Trust – with artists including Blondie, Stormzy and Ed Sheeran – although estate agent Jefferies claims its size is an obstacle. This week, Hipgnosis said it would sell some catalogs, but the statement further increased the discount to 41.8 percent.

Ben Yearsley of Shore Financial Planning says valuation concerns have deepened discounts on renewable energy funds, eclipsing their inflation-proof earnings.

Yearsley says: ‘Take Downing Renewables & Infrastructure for example, which yields 5.88 per cent and has a 25 per cent discount. It is investing in hydropower and solar energy and this year acquired an electricity grid in Sweden.

‘Harmony Energy Income Trust, which focuses on battery storage projects such as Bumpers Solar Farm in Buckinghamshire, sold one of its holdings last week at above asset value, which should go some way to easing concerns about valuations. There is a discount of 24 percent and a return of 9 percent.’

GCP Infrastructure has an even bigger discount of 34.8 percent – ​​​​and yields 9.8 percent. This will raise eyebrows, but Matthew Read of analytics group QuotedData points to the trust’s inflation-proof income from its portfolio of UK infrastructure debt.

Read says Abrdn European Logistics Income Trust is at a 30.8 percent discount despite strong demand for its ‘big box’ logistics and ‘last mile’ urban warehouses.

This trust is my alternative income choice. I believe the market’s perception of its prospects is too pessimistic. I would like to have money in these assets even if they weren’t discounted.

I also put savings into the new NS&I bonds, which require you to lock up your money for a year. There’s no guarantee that Income Trusts share prices will rebound next fall, but therein lies the excitement of investing.

DIY INVESTMENT PLATFORMS

A.J. Bell

A.J. Bell

Easy investing and ready-made portfolios

Hargreaves Lansdown

Hargreaves Lansdown

Free fund trading and investment ideas

Interactive investor

Interactive investor

Invest with a fixed amount from € 4.99 per month

EToro

EToro

Social investing with CopyTrader feature

Bestinvest

Bestinvest

Free financial coaching

Affiliate links: If you purchase a product, This is Money may earn a commission. These deals have been chosen by our editors because we believe they are worth highlighting. This does not affect our editorial independence.

Compare the best investment account for you