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Independent adviser Bryan Fisher answers a reader's query on the pros and cons of a personal equity plan.

Q: I am considering making two PEP investments of pounds 6,000 for myself and my wife. I am adventurous and she is cautious. Which is the best PEP for us? What are the risks? There seem to be so many PEPs available, I find it all very confusing.

B.J, Manchester

A: A PEP is just a set of rules placed around an investment in British or European Union equities (shares) either individually or via a unit trust or investment trust. The gains are free from capital gains tax and income free from income tax. Investors pay charges to the managers.

Unit and investment trusts invest in many different sectors,including emerging companies, smaller companies, UK growth, UK income and more specialist areas. Some managers offer tracker funds, which follow a selected market index and levy lower charges.

Up to pounds 1,500 of the pounds 6,000 allowance for a general PEP may now be invested overseas. A further pounds 3,000 can be invested in shares of a single company. The general PEP allowance can also be invested in assets paying fixed- interest dividends, known as corporate bond PEPs.

The most important factor is the track record of investment performance. Volatility and charges are also considerations, but good investment performance considerably outweighs these factors. The best performing PEPs have tripled in value over the last five years. This is equal to a compound return of 24 per cent per annum.

As a cautious investor, your wife might be interested in a corporate bond PEP. These are investments in fixed-interest securities, though the capital value can still vary, going down when interest rates rise and vice versa. The ultimate security of a guaranteed return of around 7 per cent can be achieved through a permanent interest-bearing PEP.

As a more adventurous investor, you can choose from the special situation sector, with or without a proportion world wide. The optimum solution would be the best track record from the growth sector with minimum volatility and charges.

Your choice in investment will depend on your individual definition of caution and adventure. The best solution is to talk to an adviser who has the facilities to monitor the investment performance, volatility, and charges of the whole range of PEPs available.

Bryan Fisher is financial planning manager at Berkeley Financial Planning in Coventry. The advice is for guidance only and no action should be taken without receiving specific and professional advice. Readers can write to him c/o The Independent, no more than 250 words, please.

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