Personal Equity Plans: Your starter for pounds 6,000

YOUR general pounds 6,000 PEP can comprise shares and fixed-interest bonds, or funds which invest them. If you are new to the investment game, funds are the best bet since holdings are chosen for you and stock market jitters are dispersed by investing in dozens if not hundreds of different shares.

Funds can include unit trusts, investment trusts and the new-fangled open-ended investment companies (Oeics). Unit trusts, by far the most popular PEP investment, simply divide their assets into units of equal size, which are bought by investors. Investment trusts are listed companies and are prone to be more volatile than unit trusts, although growth can be more dramatic.

You can quickly cut through the 1,000-plus funds that are eligible for PEP investment by deciding whether you want to invest to receive a regular income or to lock your money away, leaving it to grow. Funds can offer either or both. Growth investors can choose from funds investing in big "blue chip" companies, and smaller company funds that are generally more volatile but have more potential for rapid share price growth. While index- tracking funds following the FT-SE 100 index have led the way recently, smaller companies may come to the fore now investors feel that many blue chip stocks are looking overpriced.

PEP investors have tended to stick to the UK but continental Europe can account for your full pounds 6,000 general PEP allowance if you wish. The region has been providing some of the best returns to PEP investors.

In What PEP magazine's latest analysis, six of the top 10 PEP unit trusts were European funds. Keiran Gallagher, manager of the Newton European Fund, says the good returns are because European companies are coming round to the idea of shareholder value and are tightening up their operations in preparation for European Monetary Union. "Europe is undergoing the same process of change that the UK experienced under Margaret Thatcher in the 1980s," he says.

Investors wanting to go further up the risk ladder can invest up to pounds 1,500 of their general PEP overseas, for example in America, Japan or the Far East funds.

Roddy Kohn of Kohn Cougar, independent financial advisers, believes Asia is a good home for some PEP money, even given the economic turmoil. "You have to be fairly gutsy and accept that there will continue to be a lot of volatility for some time to come. But provided money is left for the long term, now is a good time to invest."

Mr Kohn points out that Far Eastern funds produce little or no income, so investors worried about the pounds 50,000 threshold proposed for Individual Savings Accounts can leave them outside their ISA in 1999 and have fewer tax consequences to worry about. "You can set the growth you do make against your annual capital gains allowance."

Income-seeking investors should stick to UK-invested funds, as few foreign markets can match the dividends that UK companies pay on their shares.

Mr Kohn champions investment trusts for income-seekers, for example the split-capital Geared Income & Growth trust managed by Henderson Investors. The trust's ordinary shares are trading at a 13.5 per cent discount to the trust's net asset value (NAV), which means new investors are in effect getting income on a pounds 1 worth of assets but only paying 86.5p for them. Geared Income & Growth is due to wind up in 2003, at which point ordinary shareholders could be due a further cut of the trust's assets.

Split investment trusts can offer income of as much as 13 per cent if they are highly geared, but you need to know how they work and the risks to capital.

Income-seekers who do not want these risks and complexities should look to corporate bond unit trusts. These invest in debt issued by companies. Investors give the company their capital to borrow, receiving annual interest on it until the capital is returned at some specified future date. The typical advertised yield for a corporate bond fund is 7 per cent a year. Funds with higher yields should be inspected closely as they are usually either investing in higher-risk bonds or tapping into capital to increase returns.

Once you know the type of fund you want, you can start sifting out the good ones. Comprehensive performance tables, which divide funds by their objective or geographical exposure, are given in monthly magazines like What Investment and Money Management. Performance should be studied over a number of time periods to be sure that a fund's good showing in one period is not a fluke.

Familiarise yourself with the names of the management houses constantly at the top of the league tables. A group that has good performance across its fund range indicates a successful house approach rather than a single star manager who could leave at any time.

q Juliet Oxborrow is editor of 'What Pep' magazine.

News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
i100This Instagram photo does not prove Russian army is in Ukraine
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
News
Morrissey pictured in 2013
people
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
News
Field of broken dreams: Andy Bell visits Passchendaele
news5 News's Andy Bell visited the killing fields of the Great War, and his ancestor - known only from his compelling war diary - came to life
Travel
travel
Finacial products from our partners
Property search
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Spectators at the Isle of Wight music festival watch the World Cup on the big screen. Betting promotions were a feature of the tournament
Lenders have been accused of persuading vulnerable people to borrow expensive credit

Payday loan firms accused of bombarding vulnerable people with nuisance phone calls

Payday loan firms have been accused of bombarding financially vulnerable people with nuisance phone calls, after a debt charity reported that a third of its clients were plagued by the messages.

The foundation proposed that the Government sets up a scheme to help people avoid losing their homes

Mortgages: 'Homeowners could trade down to shared ownership to defuse rate rise timebomb'

A plan to defuse a “mortgage debt timebomb” when interest rates rise is published today amid warnings that 2.3m households could struggle with their repayments.

Current accounts are too costly and confusing, says CMA as it announces investigation into Britain's biggest banks

Competition regulator to investigate market where it's hard for customers to make comparisons and the big banks' charges can be set too high
All the signs have been pointing up for buy-to-let, but there are clouds on the horizon

Buy-to-let: is it a boom or a bubble fit to burst?

People borrowing to be landlords could face the same restrictions as homebuyers, with MPs voicing fears that property speculation may be overheating the market

Moment of truth for payday lenders: Watchdog plans to curb cost of short-term loans

The chief of the City watchdog, Martin Wheatley, spoke exclusively to The Independent's Simon Read about its attempts to control the worst excesses of unscrupulous high-cost credit companies

Consumers given power to choose a green deal

How would you like to be able to choose how your electricity is made and even where it come from? It may sound futuristic and fanciful but the independent supplier Co-operative Energy has made it a reality this week.

'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers

City regulator says existing customers suffer worst rates

Motor insurers divided on proposals for whiplash ban

MPs want medical evidence for claims. Will this bring higher premiums?

British Gas repays £1m for mis-sold deals

British Gas was yesterday forced to pay back £1m to its customers after mis-selling them energy deals.

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

    1st Line Support Technician / Application Support

    £20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

    Team Secretary - (Client Development/Sales Team) - Wimbledon

    £28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

    Accountant / Assistant Management Accountant

    Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

    Senior Investment Accounting Change Manager

    £600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

    Day In a Page

    Dress the Gaza situation up all you like, but the truth hurts

    Robert Fisk on Gaza conflict

    Dress the situation up all you like, but the truth hurts
    Save the tiger: Tiger, tiger burning less brightly as numbers plummet

    Tiger, tiger burning less brightly

    When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
    5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

    In my grandfather's First World War footsteps

    5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during the war. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
    Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

    Do women cyclists need 'pootling lanes'?

    Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
    A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

    A tale of two presidents

    George W Bush downs his paintbrush to pen father’s life story
    Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

    The day America’s love of backyard tigers led to a horrific bloodbath

    With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
    Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

    How Samuel Beckett became a French Resistance spy

    As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
    We will remember them: relatives still honour those who fought in the Great War

    We will remember them

    Relatives still honour those who fought in the Great War
    Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

    Kodak's last-ditch bid to keep celluloid alive

    Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
    Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

    Acting in video games gets a makeover

    David Crookes meets two of the genre's most popular voices
    Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

    Could smartphones soon be diagnosing diseases?

    Health Kit and Google Fit have been described as "the beginning of a health revolution"
    Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

    Can we learn to love Ryanair again?

    Four recent travellers give their verdicts on the carrier's improved customer service
    Billionaire founder of Spanx launches range of jeans that offers

    Spanx launches range of jeans

    The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
    10 best over-ear headphones

    Aural pleasure: 10 best over-ear headphones

    Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
    Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

    Commonwealth Games

    David Millar ready to serve up gold for his beloved Scotland in the end