investments

When investing, you take calculated risks to increase your chance of getting higher returns on your money, especially over the longer term

There are various types of investment – some will be right for you and others won't. It all depends on your attitude to risk and what you are trying to achieve with your investments.

We can help you to take out the most suitable investment policy for your needs. Perhaps you are looking for an investment to provide money for a specific purpose in the future. Alternatively, you might want an investment to provide extra income.

A sample of some investments include:

 

ISAs

An ISA is a tax efficient saving account, investors do not pay income tax on any interest or dividends they receive from the investments held in an ISA, nor Capital Gains Tax on any gains made on disposal of the ISA.

Currently there are two types of ISA: a Cash ISA and a Stocks and Shares ISA. In one tax year you can invest a total of £7,200. Up to £3,600 per tax year could go into a Cash ISA with the balance, up to the overall £7,200 annual allowance, available to invest into a Stocks and Shares ISA.

 

Unit Trusts

Unit trusts are open ended, collective investments. A unit trust is open ended because the number of 'units' in each trust will vary according to supply and demand. It is collective because it puts together monies from many different investors which is then looked after by a professional investment manager. It is the job of the fund manager running unit trusts to make sure the money is invested properly and to deliver to investors the very best returns given market conditions.

What do unit trusts invest in?

Most unit trusts use the money given to them by unit holders to buy ordinary shares, or equities, but there are a great many different types from which to choose.

Some unit trusts are very general and hold a large number of shares in different companies, spreading investments into overseas companies in some cases. Others are more specialised, giving the unit holders access to a particular geographic area or particular type of investment by industry sector.

It is important to decide what level of risk you want to take before choosing unit trusts. In any event though, unit trusts are a way of spreading risk across a larger number of ordinary shares than might otherwise be possible.

 

OEICs

Open-Ended Investment Companies (OEICs) are stock market-quoted collective investment schemes. Like investment trusts and unit trusts they invest in a variety of assets to generate a return for investors. They share certain similarities with both investment trusts and unit trusts but there are also key differences.

What are the benefits of investing in an OEIC?

Like unit trusts, OEICs provide a mechanism of investing in a broad selection of shares, thus aiming to reduce the risks of investing in individual shares. Therefore, you have an opportunity to share in the growth potential of stock market investment. However, do remember that your capital is not secured and your income is not guaranteed.

You have access to your investment when required, although you should regard investing in an OEIC as a medium to long term investment. You may invest by lump sum and / or by regular monthly payments. Through the OEIC structure there is the flexibility to switch easily between the investment funds provided by your OEIC manager.

Do remember that the value of your fund(s) and any income you choose to take depends on the performance of investments in that fund. Where a fund invests overseas, exchange rate changes may also cause the value of your fund to fluctuate.

 

Investment Trusts

An investment trust is a collective investment fund which pools together money from hundreds or thousands of investors. This pool of money is structured as a company with shares quoted on the stock exchange.

A professional fund manager is employed to invest the funds in the shares of a wider range of companies than most people could practically invest in themselves. There are more than 300 investment trusts responsible for the management of billions of pounds' worth of assets on behalf of investors.

As a quoted company, an investment trust is a 'closed ended' fund with a fixed number of shares in issue. Conventional investment trusts issue only one class of ordinary share. These usually give shareholders a right to dividend distributions and offer the opportunity of capital growth to increase the value of their investment.

Some investment trusts are structured to offer high income while others focus on growth or a mix of growth and income. Some specialise in certain countries or regions. Others target specific industry sectors .The price you pay for shares in an investment trust will vary, depending on how popular the trust is. Too few buyers will mean the share price will drop however well the individual holdings of the trust are doing.

Each investment trust sets out its investment policy when it is launched and this will be reiterated each year in its annual report. A trust can ask shareholders to agree a change in investment policy. Some specify a date on which they will be wound up and the proceeds from the sale of investments returned to shareholders. Others hold a vote at regular intervals to decide if the trust should wind up or carry on.

Investment trust companies' shares are listed on the stock exchange. This means you may buy shares in an investment trust through a stockbroker or execution only dealing service. You may hold the shares in your own name or through your broker or dealers nominee account service.

You may invest in an investment trust through an Individual Savings Account (ISA). This would mean that any capital gains you make are free of income tax and you would, if you are a higher rate taxpayer, have no further tax to pay on any dividend distributions received from the ISA.

Several investment trust management companies offer a 'wrapper' option of buying investment trust shares without having to use a stockbroker. Using this option you may invest a regular amount each month or a lump sum. Most investment trust shares are available through such schemes.

You may make your investment decisions without recourse to financial advice. However, you may find it useful to go to a professional independent financial adviser, who will give you advice on what to invest in either via direct shareholdings, or via a regular savings scheme.

If you decide to select your own investment trust you may choose whether to go direct to a stockbroker or an execution only dealing service to buy the shares for you (the direct holdings route), or to approach a fund management group to invest via a wrapper product.

 

Investment Bonds

An Investment Bond is a single premium, whole of life contract that carries minimal life cover. It is designed to provide growth or income or a combination of both. The bond commences on the date the investment is made and ceases on either the death of the life assured or when fully encashed. When you invest, your money goes into one or more investment funds you choose. Charges are taken from the investment bond to cover the cost of fund management and policy administration. 

Investment experts called fund managers invest the money on your behalf. You should only consider an investment bond if you are thinking for the medium (at least 5 years) to long term (at least 10 years).

So how does it work?

Each fund is divided into 'units', which rise and fall in value according to the performance of the fund - remember, there are no guarantees and you may get back less than you invest. There is a published 'unit price': you multiply this by the number of units you hold to calculate how much your Investment Bond is worth.

What investment funds can I choose?

There are a wide range of investment funds available for you to choose from depending on the type of Investment Bond you select and also your attitude to risk. The value of overseas investments can fall as well as rise purely on account of exchange rate fluctuations.

What is the minimum investment?

Depends on the company that provides you with the Investment Bond and the bond itself.

 

PEPs

Personal Equity Plans (PEPs) were available for investment between 1987 and 1999, allowing investment into stock market related funds free of income and capital gains tax.

When PEPs were introduced in 1987 by the then Chancellor, Nigel Lawson, the idea was specifically to encourage people to buy company shares but an initially limited range of possible investments in PEPs was ultimately widened to include unit trusts, investment trusts and corporate bonds.

New PEPs are no longer available but you may retain any investments you have already made under the tax-shelter umbrella offered by PEPs, which is now similar to that offered by Individual Savings Accounts (ISAs)

The costs of running PEPs vary enormously according to whether you hold shares, unit trusts or investment trusts. With shares held directly, there'll be a stockbroker commission every time a trade is made; managed funds, such as unit or investment trusts will have charged you an initial fee as well as an annual management charge. These are set as a percentage of the amount you invest. e.g. usually between 0% and 6% for an initial charge and up to 2% for an annual management charge.

You may still face initial charges if you are transferring funds in PEPs to a new fund manager. PEP transfers are often treated as new business although some providers discount initial fees for transfers or make cut-price offers for investments over certain amounts.

Your existing PEP manager may also make a charge for the withdrawal of funds. Such transfer penalties vary from 0% up to 5% in some cases for transfers within one year. There is also likely to be a small fee for leaving the PEPs scheme which is likely to be between £25 and £50 plus VAT.

You may minimise the cost of transferring your PEPs investments by using an independent financial adviser to negotiate a reduced fee or by using a discount broker who will refund commission, providing you do not need advice.

Always remember, low charges can be attractive, but cheapest is not always the best. PEPs fund managers can be worth the money they are paid.

 

This is a sample of some of the companies available.

ISA limits refer to tax year 2008/2009.

INVESTMENT VALUE MAY GO UP AS WELL AS DOWN. YOU ARE NOT CERTAIN TO MAKE A PROFIT AND MAY GET BACK LESS THAN YOU ORIGINALLY INVESTED.