Bewildered by the choice?

The children's game of sticking the tail on the donkey can seem like a good way of choosing a personal equity plan at this time of year. The PEP season is in full flow and with more than 1,200 to choose from, it can be hard to choose the right one.

But just because you can only invest in one PEP each year, it doesn't mean you have to put all your annual allowance into just one fund. If you want to spread your risk , a portfolio PEP could be the answer. This allows you to invest in several funds run by a range of investment houses. Skandia Life's MultiPEP is the most flexible scheme as it allows you to decide which funds you want to put your money in.

You can choose from more than 50 funds run by 13 unit trust managers including Fidelity, Perpetual, Schroder, Jupiter, Credit Suisse, Morgan Grenfell, Newton and Baring. The range includes nine UK equity income unit trusts, 38 growth unit trusts and four corporate bond funds. The usual PEP rules apply, so investors can only put a maximum of pounds 6,000 a year into the MultiPEP and at least 50 per cent of the PEP must be invested in "qualifying" unit trusts or investment trusts. The minimum investment is pounds 1,000 or pounds 50 a month and you must put at least pounds 500 or pounds 25 a month into each fund within your PEP.

Most people invest in three or four funds. By spreading your PEP investment you do not have to rely on one fund doing well. If one sector, or one manager, does badly, the other funds should soften the blow.

You also choose from the top- performing funds in each investment sector and consolidate PEP holdings under one roof instead of having them dotted around various fund managers.

One thing to watch out for is the charges. MultiPEP has an initial charge of 4.75 per cent, which is higher than many PEP plans, and every time you switch between funds it costs 0.25 per cent. The annual management fee is between 0.75 per cent and 2 per cent depending on the funds in which you invest. The only way to put money in MultiPEP is through an independent financial adviser.

There are also "fund of funds" PEPs. These are unit trust funds that invest in a range of other unit trusts. There are around 40 of these PEPs, most run by individual investment houses which allow you to choose only from their funds. This can limit your choice, notes David Aaron, an independent financial adviser whose firm runs the OM Aaron Master Trust: "An in-house fund cannot choose from the hundreds of funds which are available to an independent fund of funds like ours." An independent fund of funds typically invests in 20 or more funds offered by around 15 different managers.

The fund of funds manager decides on behalf of the investor which funds to back, and many people prefer this, according to Rodney Aldridge at Rothschild Asset Management: "A lot of investors are not comfortable selecting and monitoring the funds in their portfolio." Rothschild Asset Management, Portfolio Fund Management and the David Aaron Partnership each run independent fund of funds PEPs. Premier Fund Managers runs three funds, each with a different investment aim.

Investment requirements vary. David Aaron and Premier will accept a lump sum of pounds 1,000, Portfolio's minimum investment is pounds 3,000 and Rothschild's is pounds 6,000. Monthly schemes range from pounds 30 to pounds 250.

q The 'Independent on Sunday' is launching a free guide to PEPs sponsored by GA Life and available by calling 0500 125888, or by filling in the coupon below.

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