Personal Equity Plans: Get a drip on yourself

The deadline for buying PEPs may be just weeks away, but the spectre of stockmarket volatility is a powerful deterrent to buyers. However, stress-free investing can be yours - with a drip-feed PEP

There is only a matter of weeks left if you fancy a last-minute PEP (closing date is 5 April, the end of the tax year). But if you have been left feeling queasy by share-price volatility, the thought of investing up to pounds 6,000 in a lump sum could be too much to stomach.

After all, December of last year saw some of the largest ever one-day rises and falls in the value of the FTSE All Share Index.

Richard Hunter, of IFA Holden Meehan, warns: "We could still be in for a white knuckle ride. I have not advised any of my clients to make single premium payments into an equity PEP over the last 12 months. Pound cost averaging is the best response to real market uncertainty of the kind we now face."

This approach spreads investment over peaks and troughs, buying into unit or investment trusts each month.

PEP providers are allowed to offer this facility for up to 12 months of the tax year following that in which you use your PEP allowance. Basically, you invest in the PEP now, and the manager feeds into equities a bit at a time.

Drip-feed PEPs combine a tax-free cash account with regular premium savings plan into one or more of their available funds.

If you invest just before the 5 April 5 deadline, your cash will earn interest gross while paying regular monthly premiums into one or more funds of your choice for up to 12 months. But a little care is needed; not all providers offer this facility and there can be significant variation between those that do.

For instance, NPI offers a drip-feed PEP investing your cash over three, six or 12 months. Its tax-free cash account is paying a current gross rate of 5.25 per cent interest with a minimum lump sum of pounds 4,000 and choice of up to eight qualifying funds.

Meanwhile, Henderson Investors will let you invest over the same periods but also a offers a reinvestment option within the overall 12-month limit. This allows you to redeem any investment already made for the current year's PEP, revert your cash to a tax free account, and then re-invest it over three or six months.

Henderson is currently paying 5 per cent gross on cash balances, will accept a minimum lump sum investment of pounds 2,000 and offers a choice of 25 unit and investment trusts through its plan.

Fidelity has also entered the field but offers phased investment over only six months, with a minimum lump sum investment of pounds 6,000. Interest is currently paid at 4.25 per cent, with a choice of up to 20 qualifying funds.

For further advice on drip-feed PEPs contact Richard Hunter at Holden Meehan on 0171-692-1700 or speak to your existing independent financial adviser. For details of an adviser near you, call 0117 971 1177