Reach a little higher

Steering first-timers through the maze of fund management

If you are new to saving and investing, you may feel instinctively that building society savings accounts are safe and any stock market investment is risky. But if you leave all your spare cash on deposit, its value will be eaten into by inflation - at whatever level - and it can never grow in a real sense.

If you are new to saving and investing, you may feel instinctively that building society savings accounts are safe and any stock market investment is risky. But if you leave all your spare cash on deposit, its value will be eaten into by inflation - at whatever level - and it can never grow in a real sense.

Figures from the Association of Unit Trusts and Investment Funds (Autif) show that an investor who placed £10,000 in the average UK equity income unit trust 10 years ago, would have received £4,800 in income over the 10 years to 1 October 1999. They would have also seen their savings grow to £17,910. Income from a deposit account over that time would have provided £4,530, but the original investment of £10,000 would have remained the same.

Such performance cannot be guaranteed, but as little as £10 a month can get you a slice of the equity action. But be prepared to leave your investment undisturbed for at least five years. Anything less is gambling. And you do not have to invest a large lump sum straightaway. Many management groups welcome regular monthly savings from £10 upwards. If you invest via their ISA, they typically reduce the initial charge from 5 per cent to 3 per cent.

There are 1,700 funds spread across more than 20 sectors that cover the world as well as separate industries. Some funds are run on an ethical or environmental basis, while some of the cheapest are so-called tracker funds that simply follow a stock market index up and down.

Autif supplies basic information onfunds and their performance. It runs the Unit Trust Information Service, with free guides to the industry: call 0208-207 1361. Autif can also give you a list of local IFAs by passing your details on to Independent Financial Advice Promotions (IFAP). Magazines and personal finance websites, such as MoneyWorld, may also help. (See below for details.)

Fund managers are concerned first-timers do not get burnt. Graham Campbell, of Edinburgh Fund Managers, says: "A new investor will tend to be looking for a low-risk investment in the stock market. The best thing to do is to look for an established, consistent track record. Look to see continuity of management. My research shows funds that have had the same manager for three years tend to do the best."

Of his own funds, Campbell recommends Edinburgh Income, with assets spread across bonds, cash and equities. It is designed for those who want a bit more yield than the market "but do not want to risk their shirt". Its current yield is 3 per cent while the yield on the FT-SE All-Share is 2.3 per cent.

Jonathan Fry, managing director of Premier Investment Management, suggests his Global 100 fund, which invests in the world's 100 largest companies. "It is never going to be the best fund, but it is never going to be the worst. It is there if you believe in globalisation and is an index-type fund with active management."

Stephen Glynn, Jupiter Fund Managers' sales and marketing director, points to the merits of an income fund where income underpins growth, such as the Jupiter Income trust, providing above-average market income and lower volatility.

Worth considering too is the Marks & Spencer Investment Portfolio, with a spread of investments across the world's bond and stock markets. It has been a top performer in its sector since launch in 1988. Fund management is by a board that selects different fund managers for differing elements of the portfolio. If they don't perform they go! Initial charge is normally 3 per cent, annual charge 1.5 per cent. M&S says IoS readers who call before 15 November and state reference number P417 will get a 2 per cent reduction on the initial charge.

IFA Ian Beestin, of the ISA Shop, focuses on some of the funds in his company's ISA guide that have 10-year performance records and have excelled in their sectors. "A lower-risk equity investor might consider Perpetual High Income. This invests in the UK and mixes high-yielding equities with convertibles and fixed interest securities. Given this mix its 10-year growth of 305 per cent is outstanding." He also likes Jupiter Income, Invesco European Growth, Fidelity American. But the star is Aberdeen Technology with more than 1,000 per cent growth in 10 years.

Another discount IFA, Best Investment, is offering its free Cautious Investor guide: call 08705 501112. It has information on protected equity and corporate bond funds, and other investments.

When setting up the ISA regime, the Government introduced guidelines on cost, access and terms (CAT) to ensure that first-time investors would not be ripped off. Only funds that follow these guidelines can be called CAT-marked.

But a CAT-mark is no guarantee of performance. Nor does it mean you have bought the cheapest fund. Some CAT-marked index tracking funds with no initial and a 1 per cent annual management charge are three times more expensive than the cheapest actively managed fund - Alliance Investment Trust - that does not have a CAT-mark.

Mr Beestin said: "A cost-conscious investor may consider a CAT-marked tracker fund that can give a very wide spread at relatively low cost. Over the last 10 years the FT-SE All Share has gone up 239 per cent: Legal & General's index tracker has no initial charge, and an annual charge of just 0.5 per cent.

Income is at a premium with low interest rates on deposit accounts and paltry income available from shares in general. Those seeking a higher return are looking to corporate bond funds - funds that invest in debt instruments issued by companies and governments.

Patrick Connolly, of Chartwell, said: "Income seekers should look at corporate bonds as they are not as risky as equities and have the advantage of attracting 20 per cent tax credit, while equities in ISAs only have 10 per cent tax credit till 2004. Mercury High Income Bond Fund is diversified between UK and Europe and [aims to preserve] capital. It has the resources of parent Merrill Lynch, one of the world's experts in corporate bonds." Chartwell charges £20, but rebates 3 per cent of the fund's 3.25 per cent initial charge and 0.25 per cent of the 1 per cent annual charge. But be careful of corporate bond funds offering above 6.5 per cent or so.

IFA discount brokers: Best Investment, 0171-321 0100, e-mail: Best's quarterly report, Best PEP & ISA is available free on 0990 112255. HCF Partnership, 0800 908938; the ISA Shop, 0115-958 7555. e-mail; Chartwell Investment Management, 01225 321700. Web site

Advice and information: 'What Investment', 'Bloomberg Money', and 'Money Observer'. A number of personal finance web sites may also help, including 'MoneyWorld' (, 'MoneyeXtra' ( and Interactive Investor International (

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

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