Spotlight: Invest On-Line's UK Tracker PEP

The Product: Invest On-Line's UK Tracker PEP.

The Deal: Invest the maximum pounds 6,000 PEP allowance for the year and Invest On-Line, the direct marketing arm of Royal & SunAlliance, will give you some bargain basement charges. The money goes into a tracker fund which aims to mimic the performance of the FTSE All-Share index.

Plus Points: It really is very cheap if you invest the maximum. A 0.3 per cent annual management charge is as low as it gets; even Legal & General's annual management charge is higher at 0.5 per cent (Virgin's tracker fund, once among the cheapest, is quite expensive now at 1 per cent).

Tracker funds have significantly outperformed active fund managers. Gartmore, PDFM and Mercury Asset Management are all suffering from clients disaffected by what they see as poor value for money.

Drawbacks and risks: Many now believe the market looks peaky, having grown by 40 per cent in the last year. If it takes a downturn, trackers will take the full weight of any fall. Active fund managers may - or may not - outperform a tracker in a sluggish market. In 1994, they did much the same as trackers. As with 1987 and 1990, two other occasions when stock markets fell and most managed funds failed to better tracker performance.

The charges have a few snags. Whereas L&G just has a management fee, Invest On-Line takes a bid/offer spread of 0.8 per cent. Still cheap, but if you invest less than pounds 6,000, there's a 2 per cent initial charge and a 2.7 per cent bid/offer spread, which is not so cheap. If you invest the same pounds 6,000 with L&G through the PEP Shop in Nottingham (0115 9825105), you'll also get a 1 per cent cash rebate, worth pounds 60.

Verdict: Cheap but not the cheapest, and safer investments exist.

Marks out of five: Three