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Aiming for growth? Saving for glamorous holidays? Or more interested in a high yearly income? Ken Welsby advises on the most appropriate PEPs for your personal priorities
Why do you want a PEP? Or, to put it another way: what do you want a PEP for? This is one of the first questions to answer when you come to look at any type of investment - and it's particularly true with investments such as personal equity plans which depend, for the most part, on stock-market performance. So let's look at what you can get out of a PEP.

Probably the first thing to decide is whether you want the plan mainly to provide you with an income, or whether you are looking for capital growth.

Bruce and Barbara Wilson, both in their late forties, say that after years of struggling to make ends meet they are now "comfortably off" - and want to stay that way when they retire, he from engineering management, she from a medical career.

"By coincidence we have both got capital sums to invest," Bruce says. "I think it's the first time in our married lives that we've ever been in that position. Barbara has just collected pounds 10,000 from her Tessa and we also made money when we moved from Berkshire back to Liverpool; as you'd expect, there was a big difference in property prices."

The Wilsons are looking for capital growth. They have each put pounds 6,000 in managed PEPs for the current tax year, and are now looking to use the pounds 3,000 allowance for single-company PEPs before the end of the tax year. In April Barbara plans to start a PEP savings plan, investing "pounds 400 or so" each month from the pay rise which came with her new job in Liverpool. More of the money they made from moving house will go as a lump sum PEP in Bruce's name.

Barbara had never considered a stock-market investment until the publicity surrounding the launch of the Virgin PEP. "It made me think about making our money work harder," she says. "I want to be able to enjoy my retirement, not have to do locum cover three days a week to make ends meet."

On the other hand, someone on a modest salary with a lump sum - part of an inheritance, for example - may be attracted by an investment bringing in a modest income.

Emily Walker, a marketing executive, has a simple investment goal: she wants her PEP to pay for a holiday every year. To some of her friends back in Devon, a salary of pounds 25,000 a year in London sounds like big money, "but they don't realise what the cost of living is here."

So when an aunt left her some money, "my first priority was to buy a flat without having to take out a 99 per cent mortgage, and I moved in just after Christmas. I've tucked away a couple of thousand for emergencies - in case I get the sack - and now I'm putting pounds 9,000 in PEPs for this tax year, and the same again for next. Obviously the mortgage is a big commitment - so the idea of a few hundred a year tax free has got to be a big attraction."

PEPs are long-term investments. Their value will rise and fall in line with stock-market and company performance, and ideally they should be kept for at least five years. They aim to achieve both income and capital growth. Typically, a PEP earns between 3 per cent and 5 per cent a year in dividends, as well as achieving capital growth. Those looking primarily for income from a PEP should consider a corporate bond plan, or one which aims to achieve a high income.

The next choice is between actively managed funds or passively management, commonly known as tracker funds. With active funds, the manager selects individual company shares within a specific investment sector. This could be a specialist area, such as small companies, or a particular region, such as the UK or Continental Europe. If you want to see how these sectors compare, check the unit trust pages in Saturday editions of The Independent.

Trackers aim to mirror the performance of a particular stock-market index - either the FT-SE 100 or the FT-SE All Share. The FT-SE 100 index covers the 100 companies with the highest market capitalisation, while the All- Share index covers about 900 companies and is thus representative of the market as a whole rather than the leaders only.

The FT-SE 100 represents almost 70 per cent of the market by value, while the All Share covers 95 per cent - and benefits from the inclusion of smaller companies often out-perform the leaders.

Funds which track the FT-SE 100 are offered by HSBC, Fidelity, Midland, Sovereign and Virgin Direct, while Equitable Life, Direct Line, Kleinwort Benson, Gartmore, Old Mutual, Morgan Grenfell, Legal & General, HSBC and Norwich Union track the All Share index