Investment Trusts: Higher risks, lower charges

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The Independent Online
MOST investment trusts, specialist or not, carry higher risks than similar unit trusts as their share prices are driven by investor demand, writes Tony Lyons. The average discount is around 11 per cent for the industry: this means that an investor can buy assets worth pounds 1 for 89p.

Investment trust charges are low. For example, unlike the typical 5 per cent initial charge when buying a unit trust, you only have to pay the stockbroker's fee plus 0.5 per cent stamp duty when buying investment trust shares - and if you use a regular savings plan, there is no stockbroker's charge to pay. Annual charges tend to be below 0.5 per cent.

Buying investment trusts through a personal equity plan is a sound way of investing as many qualify for inclusion in a general PEP for 1998/99. To check, contact an individual manager or call the Association of Investment Trust Companies (AITC). PEP rules allow you to invest up to pounds 6,000 before next April, and any of the gains you make will be free of income and capital gains tax. From next April you will be able to put the same investments (up to a pounds 5,000 annual limit) into an individual savings account (ISA).

Most groups, including Foreign & Colonial, John Govett, Invesco and Ivory & Sime, also offer regular savings plans to those who can put aside a set amount starting from as little as pounds 20 a month. You decide how much to invest each month, and this is then paid to your plan manager via a standing order or direct debit.

Most are reasonably flexible - you can increase or decrease your contributions each month without penalty. The majority also allow you to invest an occasional lump sum or even take a break from paying contributions without any penalty.

Investing on a regular basis helps protect the investor against short- term stock market volatility. Feeding your money in bit by bit means your cash would be not be hit as hard as it would be if the market crashed immediately after investing a large lump sum. It also means that you buy shares "cheaply" as prices fall, which will be worth a lot more if they subsequently rise again.

A good independent financial adviser will be able to recommend those investment trusts that will suit your investment aims - if you do not have one, IFA Promotion (tel: 0117 971 1177) can give you a list of independent advisers in your area. They are usually paid commission by the fund managers. Always make sure you understand exactly what you are being sold and why it is being recommended before you sign any money over.

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