Check out what's for sale in supermarkets

If you think you know what you're doing, you can set up your own portfolio and tailor it, says Barbara Oaff. You can save on costs, but there are dangers

Just as supermarkets are great for choice, price and convenience, as long as you do not mind serving yourself, so are their rapidly expanding investment counterparts, online fund supermarkets. Compared with a traditional stockbroker, these websites allow investors to buy a wider range of individual savings plans (Isas) at lower fees, as long as you do not need your hand held.

Just as supermarkets are great for choice, price and convenience, as long as you do not mind serving yourself, so are their rapidly expanding investment counterparts, online fund supermarkets. Compared with a traditional stockbroker, these websites allow investors to buy a wider range of individual savings plans (Isas) at lower fees, as long as you do not need your hand held.

Fund supermarkets are best suited to the well-informed. They operate on a self-service basis: no one is available to offer advice, expert or otherwise. So, to buy an "execution-only" Isa you will have to know first, what you want to achieve with your money and where, exactly, you want to put it. As the Consumers Association says: "You won't have a sales person breathing down your neck, telling what you want to do. But if you do buy the wrong product, you will have only yourself to blame."

Unlike regular supermarkets, fund supermarkets do not do refunds. But they do discounts. A traditional broker will cream 3 to 5.5 per cent commission off your Isa purchase. A fund-management group will simply keep the commission. But a fund supermarket takes far less commission, sometimes even none, and passes the savings to the customer. So, on a £3,000 investment, for example, initial charges of up to £165 can be slashed to £60, £30 or even nothing.

Some fund supermarkets reduce the annual management charge fund managers levy on every Isa. The IFA Hargreaves Lansdown shaves off 0.25 per cent because fund supermarkets offer stripped-down economies of scale. They also allow investors to buy funds from different fund management groups, something that often cannot be done through a conventional intermediary. So you can spread your risk, taking your pick and mixing eggs from different baskets. And all without breaking the rules laid down by the Chancellor, Gordon Brown.

As well as stacking 'em high and selling 'em cheap, fund supermarkets offer a third benefit: convenience. Investors can shop any time. With a few keystrokes, they can get statement updates on demand. Wandering amongst the virtual Isa aisles could not be easier.

But is all this too good to be true? "No," says Ian McKenna, director of the Financial Technology Research Centre. "Fund supermarkets deliver consumers great value." But, as with any financial transaction, beware the fine print. Look first for an exit penalty. Funds Direct charges £25 to close an account. And fund managers apply reregistration costs when you sign off from one fund supermarket and sign up with another.

The Artemis/ABN Amro Isa charges £50 plus VAT to switch supermarkets. And remember, if you are actually switching Isas rather than fund supermarkets, you are selling one product and buying another, so you will still have to pay any initial charges.

There are a few common-sense points to bear in mind. First, just because a fund supermarket consistently gives the highest discount, that does not necessarily mean it gives the lowest price on every fund. Shop around and compare deals. Second, do not be persuaded to go automatically with an Isa that is being heavily promoted on the website. Equally, do not be tempted to opt for a ready-made fund selections some fund supermarkets list unless you have researched it thoroughly and find it does meet your needs.

Third, check that a fund supermarket is as user-friendly as possible. Ensure a contact telephone number is clearly displayed, and test it for reliability and promptness. Fourth, see if the fund supermarket web site is run on a secure internet server. This is generally signalled by a gold padlock at the bottom of the screen and by the prefix https:// at the start of the website address.

Last, ensure the Financial Services Authority has approved the supermarket you would like to invest through. To find out, ring the FSA on 0845 606 1234 or log on to www.fsa.gov.uk.

Fund supermarkets opened for business in the UK only in 2000, but research indicates their popularity is growing. In February 2002, £1bn was held in fund supermarkets, show figures from the Investment Management Association. By this February, that had risen to £1.8bn despite the ravages of the bear market and a slump in overall Isa business. This represents about 8 per cent of Britain's total Isa market.

But experts say the supermarkets cannot just sit back and wait for more shoppers. Owain Kember, marketing manager for Funds Direct, says: "To remain profitable, fund supermarkets will have to look at product expansion."

Mr McKenna, at the Financial Technology Research Centre, says supermarkets will soon turn their hands to selling anything from Isas to pensions to mortgages in a single wrapper. "Fund supermarkets will change from a sales-driven model to a customer-driven one, where they will cater for someone's lifetime financial requirements."

The ideal fund supermarket shopper

Geoff Wild is the ideal fund supermarket shopper. He knows his stuff. And he wants a bargain. Mr Wild, a 46-year-old sales engineer, lives in Ayrshire, Scotland, with his wife and three teenage children. As part of his pension plan he has invested £7,000 in a stocks and shares maxi-Isa with Fidelity's Funds Network.

"I felt completely comfortable buying my own Isa," he says. "I knew which funds I was interested in because I done my research and I knew I could get them cheaper at a fund supermarket. Instead of paying up to 5.5 per cent in commission I was able to pay 1.5 per cent. Why not make a significant saving like that where you can?

"I like being able to pick and choose several different funds," he says. "I've got five. I think being able to hold that sort of range reduces your risk.

"I would never go back to the old-fashioned way, but not all fund supermarkets are the same. The websites can be too complicated, or difficult to navigate. The charges can be hard to find and unclear. And there may be very little information on the site as to how the funds are performing. I found a big difference in the fund supermarkets that are convenient and comprehensive, and the ones that aren't."

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