Personal Equity Plans: Investment trusts look good in hindsight

IF YOU have not considered investment trusts for inclusion in your PEP, you could be making a mistake. Past performance figures suggest that those saving regularly in an investment trust PEP over the 10 years to the end of 1997 would have done better than if they had saved in a unit trust PEP.

According to Hindsight, a performance measurement company, pounds 100 invested each month in the average investment trust would have grown to pounds 23,849 compared to pounds 22,667 in a unit trust. The same amount saved regularly in a building society 30-day account would have grown to just pounds 17,421.

So what is an investment trust? Michael Hart, director general of the Association of Investment Trust Companies (AITC), explains: "It is a company quoted on the Stock Exchange that invests in shares and sometimes fixed- interest securities of other companies."

Not all investment trusts are eligible for inclusion in a PEP. You can invest up to pounds 6,000 each year in investment trusts that have at least half their assets in the UK or the European Union. For trusts not meeting this criterion, the limit is pounds 1,500 per annum.

The advantage of investing in investment trusts through PEPs is that all dividends and gains are free of income and capital gains taxes. The drawback is that there may be charges imposed by the PEP managers. Many investment trust companies have a regular savings PEP scheme that may be cheaper.

There is a huge choice of funds to choose from. If you are a long-term investor, you will probably want a trust that concentrates on capital growth. Some investment trusts offer a particularly high immediate income, others look for a balance of income and growth. There are trusts for different markets around the world and trusts that concentrate on different investment sectors, such as technology.

You will have to consider the level of risk with which you are comfortable, choosing a trust that matches your profile. Are you prepared to take a high risk or are you happier with a lower risk but potentially smaller returns? A trust that invests in a single country, for example, presents a greater risk than a general, international growth trust. The more general the trust, the wider risk is spread.

With so many options to choose from, it makes sense to get expert advice from a broker or financial adviser.

Advice won't normally be free and you will be paying for it in terms of either commission or fees. Commission is normally around 2 per cent of the value of your investment, while fee-based financial advisers may charge anything from pounds 150.

Investment trusts currently held in a PEP will be transferable into the new Individual Savings Accounts, to be introduced in 1999, up to the proposed lifetime pounds 50,000 limit. Even better, all investment trusts will be allowed into ISAs, whether invested in the European Union or not.

q The AITC publishes a useful leaflet explaining how investment trust PEPs work. For a copy, or for more information about investment trusts, call 0171-431 5222.

Start your day with The Independent, sign up for daily news emails
Suggested Topics
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Voices
A mother and her child
voices
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
Tax now accounts for ‘nearly 80%’ of the price of a bottle of whisky
news

Arts and Entertainment
Peppa Pig wearing her golden boots
film

"Oink! Oink! Hee hee hee!" First interview with the big-screen star

Life and Style
tech

Biohacking group hopes technology will lead people to think about even more dystopian uses

Finacial products from our partners
Property search
The new rules will come into effect on 6 April

Pension firms must ask consumers more questions, says City Watchdog

Companies will be required to ask about health and lifestyle choices or marital status, to protect consumers who do not take up the government’s offer of the Pension Wise guidance guarantee service

Simon Read: Frozen in time - the expat British pensioners who deserve a better deal

I had dinner with the pensions minister Steve Webb this week. There was a wide-ranging discussion about the new pensions freedoms starting in April, and changes to the state pension. Crucially, I also got to ask Mr Webb whether he had any plans to have another look at the injustice that is frozen pensions.

Number of serially under-performing investment funds has increased by a fifth, survey reveals

The new Spot the Dog survey shows that even famous fund managers, holding billions of pounds of our money, can make mistakes

Mark Dampier: We always bring down Britain. But there's plenty in the tank

While the health of the economy is not insignificant, Mark Dampier finds it incredibly unpredictable in terms of its impact on the stock market

If you haven’t switched supplier or tariff in the last 12 months then you could almost certainly save money by doing so

There are easier ways to save hundreds on your energy bills

A new free app is aimed at the three-fifths of Brits who have never switched supplier

Worse hit are loyal customers with long-standing accounts – their loyalty is rewarded with lower interest rates than more recently-launched accounts

Savers are being let down by banks and building societies, says Financial Conduct Authority

Regulator’s investigation into the market found that around £160bn was held in easy access savings accounts that pay interest lower or equal to BoE base rate

What to do if you're facing repossession: However far you fall, you're not on your own

Helen Fisher had to become a 24-hour carer, and then she faced repossession. But going to the right places for help changed everything, writes Simon Read

Simon Read: Information is power. And it's in the wrong hands when people are cold-called by companies that know they're in debt

In debt? You're likely to be targeted by unscrupulous companies that hope to profit from your misfortune. They may try to pretend to be your friend by offering what they call "help" – but almost certainly that help will come with a cost and leave you worse off than you were before they got in touch.

Mark Dampier: So you've got pension freedom... will it end up as a cold shower?

In less than three months' time radical changes to pensions will take effect, providing investors with more freedom. Yet for those who prefer to make their own investment decisions, the choice of funds available is overwhelming. And an income drawdown account is also not particularly easy to manage.

The move marks the culmination of a long campaign by debt charities and insolvency firms and follows a call for evidence launched by the Minister last August

Bankruptcy rules to change, Business Minister announces

The minimum amount for which you can be forced into bankruptcy is being raised from £750 to £5,000

Three-quarters of parents say being unable to afford to heat their home adequately is hitting the health of their children

Family well-being and health hit by heating costs

A shock report reveals that fuel poverty is affecting desperate families – and their children

Many people have no understanding of pensions

Are you ready for pensions reforms?

Most people are too confused to know how to use their pensions for a secure income

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee