Bargain hunters log on

You don't have to leave your desk to go shopping for a wide range of low cost investment funds on the internet.

For easy access to the widest choice of tuna chunks, loo rolls or chocolate biscuits at the most competitive prices, most of us head straight for Sainsbury, Tesco or Safeway. And over the past few months it's become increasingly possible to do the same when it comes to buying investment funds. You don't even have to leave your desk to go investment shopping, though, because fund supermarkets are internet-based.

For easy access to the widest choice of tuna chunks, loo rolls or chocolate biscuits at the most competitive prices, most of us head straight for Sainsbury, Tesco or Safeway. And over the past few months it's become increasingly possible to do the same when it comes to buying investment funds. You don't even have to leave your desk to go investment shopping, though, because fund supermarkets are internet-based.

But as they have proliferated, it's become clear that not all fund supermarkets offer equally well-filled shelves or direct and speedy service at the tills. Nor are the bargain-basement prices necessarily the lowest around. In other words, shrewd investors should compare before they commit themselves.

What's the basic idea?

The true fund supermarket concept, born in America, offers several advantages over conventional routes to fund buying. First (in common with the burgeoning number of discount brokers selling over the phone or online), a wide range of funds from many managers is available on a single site, and (also in common with discount brokers) initial fees are charged at a substantial discount to the price charged by financial advisers or by the fund managers themselves.

Secondly, you can mix and match your holdings within a single account. That means it's possible to spread your £7000 ISA allowance across a selection of funds and managers instead of having to commit the lot to a single plan manager (as you have to do if you buy through a conventional outlet).

Thirdly, it's a paperless account: you can buy, switch, transfer or sell your investments directly online, without having to download forms, post them off and wait for the manager to process the transaction and get back to you - which can take weeks. And fourthly, your whole account is managed online by the supermarket. So client records are held there rather than with the individual fund managers, and you can get a consolidated and up-to-date overview of performance onscreen at the click of a mouse.

What don't you get?

What you won't get is individually tailored financial advice, as you would from an independent financial adviser. Some sites offer an element of guidance to the most suitable funds for investors of your risk profile - but the risk level you choose depends on your subjective perceptions of your attitude to risk, rather than the kind of objective fact-find that an IFA would carry out.

In other words, if you don't have much idea of what kind of investment will suit your circumstances and existing portfolio, you're probably better off going to an IFA.

Nor should you expect to find a full range of funds: there are more than 1500 unit trusts and oeics on the UK market, but so far even the best-stocked supermarkets are only offering a few hundred, from a limited range of plan managers. You'll get a wider choice from an ordinary discount broker.

And you won't necessarily get the cheapest deal around: a couple of discount brokers, Chartwell and Commshare, rebate half the annual management fee as well as a chunk of the initial fee.

So how do the supermarkets differ from each other?

In several ways, including extent of the online service, costs and range of fund providers. Be aware, though, that this is a rapidly evolving service, and the likelihood is that they will all move towards a more comprehensive online service, a wider range of funds and narrowing or even disappearing front-end charges.

Online service: only two of the sitescurrently up and running - egg and Fidelity's Funds Network - offer a fully consolidated operation enabling investors to buy and manage their account online, and to hold funds from several providers within one Fidelity or egg ISA. Others - such as TQ Direct and Inter-Alliance - act more as "high streets" offering funds directly under one "roof". They provide online access to a selection of fund managers, who then open and manage client accounts online themselves.

That means that as far as ISAs are concerned you're limited to a single plan manager, and changes involve redemption and reinvestment (just as you'd do using a phone-based broker or an IFA). But you do get the broker discount.

Finally, a number of sites, including FundsDirect, VirginMoney and Interactive Investor's new FundsNow scheme, amount to a glorified brochure-ordering service. The application forms have to be downloaded and filled in; you have just one plan manager and there's no online trading available. III says it intends to offer direct processing later in the year.

Range of funds

It could be difficult to find more unusual managers or funds represented at this stage in the evolution of genuine fund supermarkets, though some services simply channelling investors through to the plan provider have larger lists. Inter-Alliance, which offers the latter kind of service, has around 2000 funds from 54 managers through its link with Micropal.

Fidelity, by contrast, while it plans to make available the full range of funds sold in the UK, so far has around 250 from 14 providers on offer. Egg, the first to launch in this country, offers around 190 funds from 17 providers. VirginMoney, because there's no initial charge on all the funds offered, has its hands tied to six providers prepared to cooperate on that basis, including Gartmore, Fidelity, Invesco and M&G.

Costs

These vary within a site, according to the deal struck with the plan manager; initial charges through Fidelity FundsNetwork range from 0 to 2 per cent, though most come in at 1.25 per cent. Discount broker Torquil Clark, through TQ Direct, plans an autumn launch for its product, which as e-commerce manager Mike Attree explains will start as a link to the Fidelity FundsNetwork site. "This 'white labelling' arrangement means that we can make use of Fidelity's buying process and technology, though we take care of investor registration, portfolio management and so on; we will also fix our own pricing structure, which will be one per cent lower than Fidelity's," he says.

TQ Direct offers some 150 funds managed by nine fund managers on a "high street" basis; Attree says the new launch will bolster that to 400 funds through 23 or 24 providers. IFA Best Investment also plans to link into the FundsNetwork facility.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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