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Having an investment portfolio with an adequate spread of risk usually involves a portion being invested in cash. This could be in a high-interest account in a UK bank or building society. Or you could go offshore and invest in a bank account or a money fund. Interest on a bank account is paid gross and no tax is payable on a money market fund until it is encashed.

In both instances the investor can make further gains (or losses) by investing in funds or accounts that are not sterling-denominated.

Offshore money funds can be invested in one of a range of currencies or offered as a single managed fund where the investment decisions on what currencies to invest in are taken by the fund manager who normally invests in a variety of currencies. The funds provide a high rate of interest for investors by placing deposits on the wholesale money markets as well as the opportunity to switch quickly and cheaply between currencies through an umbrella fund structure.

Bear in mind that interest earned is subject to UK income tax when paid out to UK residents. If the fund has "distributor" status, sale of the fund proceeds will also give rise to a capital gains tax liability after allowance for indexation. If the fund is a "roll-up" fund, the interest earned is accumulated. It grows at compound rates and is added gross. Taxation may then be deferred until the investment is redeemed, whereupon the whole gain becomes subject to income tax.

The top-performing current fund last year was the Global Manager Japan Yen Bear fund, from the Bermuda-based Bermuda International Investment Ltd, which provided a gross return, rebased against sterling, of 39.96 per cent (offer to offer).

This compares with the top-performing sterling fund, DBIM Sterling Reserve, which produced a return of 7.33 per cent over the same period.

These funds have all obtained an AAA rating from Standard & Poors. There is no initial charge for joining the single-currency funds, but the managed fund costs 3.5 per cent up front. All of these funds have an annual management charge of 0.85 per cent.

Jonathan Overland, the sales and marketing director at Newton International Investment Management Ltd, says: "There is no switching charge, and one price for buying or selling on any day.

"There is no mark-up on the exchange rates, we simply negotiate with the banks to obtain the best price for investors."

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