Questions Of Cash: Where should students invest their loan if they do not need it to live on?

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The Independent Online

Q I am starting my first year at university next month. My parents will meet most of my costs, but I will take out a student loan to invest. I do not need instant access, but will need it to call on if necessary. What do you suggest? BL, North Yorkshire

Adrian Patterson, financial planner at PKF Financial Planning, says: "You must first decide whether you will pay off the loan on graduation, or whether you will repay it slowly to benefit from the low rate of interest. If you will repay after three years, you might choose a cash-based, low-risk investment, such as a cash Isa or an internet-based savings account.

"If you opt for a longer-term investment, decide whether to take the risk that the capital will go down in value to pursue higher potential returns. If you want moderately low risk, invest in a corporate bond Isa, a property unit trust, or open-ended investment company (OEIC) investing in high value blue-chip commercial property which is less volatile than residential property but with rental income paid as dividend of about 5.5 per cent net.

"A higher-risk option would be a stock market-based investment, perhaps via a unit trust or OEIC spreading investment across a range of shares, using a share Isa. Another option would be to put the investment in a stakeholder pension to build your retirement fund, which would provide greater tax relief."

Mr Patterson adds that you should obtain independent financial advice, particularly if choosing to invest in shares.

Q Our daughter will be living in Luxembourg, but will still require financial support from us. What is the cheapest way of transferring money from a UK account into a euro account? CR, by e-mail.

Making monthly payments from the UK to an overseas account will cost £15 to £20 for each transfer. Another way is to make transfers into your daughter's UK sterling account, allowing her to make withdrawals in Luxembourg with her cash card. Or you could open a euro account in your name in the euro zone, perhaps in Luxembourg, and drip-feed your daughter's euro account. To make this cost-effective you would need large balances in your euro account.

Q Invesco Perpetual has written to me stating the value of my holding in its Japan fund was £160.68, so it falls short of the minimum investment requirement of £500. Either I have to top up my holding or they will forcibly sell my holding. Is this normal behaviour by management companies? KR, Amsterdam

Invesco says this is not their policy and the letter it sent to you and a further 2,000 clients was generated by "a computer error". It apologises and says your holding will be managed as before.

Incidentally, Charles Ansdell of Inter-Alliance advisers suggests you transfer your holding into a better-performing Japan fund such as Schroder Tokyo, although this may incur some high initial reinvestment charges. In which case, your IFA should rebate their initial commission into the new fund.

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