Step by step into shares

Equity plans provide a hedge and help small investors cut costs, Dido Sandler explains

ARGUABLY the cheapest and easiest way to buy into investment trusts, particularly for those with relatively small sums, is through savings schemes or share plans run by trust managers.

Where a stockbroker will normally charge a minimum of perhaps pounds 10 for any purchase, investment trust managers will generally make a percentage- based charge with no minimum. Typically less than 1 per cent (compared with 1.65 per cent from many stockbrokers), this makes purchases of as little as pounds 20 a month or one-offs of pounds 250 economic for the small investor.

Low charges and contribution levels and the flexibility of the savings schemes have attracted tens of thousands of small investors. They are free to change the level of their monthly contributions or take holidays when hard times hit, in a way that is often penalised by endowments and other long-term investments. Costs are kept down by the collective nature of the arrangement. Your savings are lumped together with other people's, and the managers then buy and sell shares in the particular investment trust in bulk at a given time in the month.

Bulk purchasing means keener prices and lower dealing charges than otherwise. But it also means investors have less control over when shares are actually bought or sold, or their price.

Regular savings schemes are a good way of hedging against stock market volatility - a benefit known as pound-cost averaging. By drip-feeding money into the fund on a monthly basis, individuals buy shares at a range of prices. This avoids the risk of putting in all your money just before a crash and allows you to pick up more shares when prices fall, with the effect that overall you get in at a price lower than average over any particular period.

Roddy Kohn, at the Bristol-based independent financial adviser Kohn Cougar, views the stock market as overvalued at present and says it may be due for a fall. That makes the argument for savings schemes still more convincing.

Although the schemes are fairly straightforward, it is still worth seeking independent financial advice to help with your choice of trust(s). The investment trust management companies themselves cannot give advice. Using an adviser may well mean that commissions, typically up to 3 per cent, will be added to the dealing-plan costs. but these should be clearly disclosed to you, almost certainly in writing.

The first savings plan was launched in 1984 by the giant Foreign & Colonial investment trust, in an attempt to bring an investment vehicle dominated by the institutions back to its grassroots as a private investor's fund. Half the shares are now privately owned, against an industry average of 17 per cent. For a time, F&C was a victim of its own success, and the increased administration proved a burden that had to be subsidised by the fund itself. The managers have now put in place systems, including nominee accounts, that give economies of scale thanks to the trust's 100,000 private investors.

Now 196 of the 312 trusts offer share plans. Many maintain loss-making charge structures.But managers see this as a small price to pay for increasing investor interest, which tends to help narrow the discount-to-net-asset value that trusts trade at, narrow the difference between buying and selling prices and increase the ability to buy and sell in size.

To ease the dealing process, nominee accounts, where shares are kept in trust for investors, are now the norm. Investors interested in exercising shareholder rights should check to see if they will be enfranchised.

The Association of Investment Trust Companies is giving away 20 copies of its 1995 directory to Independent on Sunday readers. Write to AITC, Independent Offer, Durrant House, Chiswell Street, London EC1Y 4YY. Free information booklets are also available.

Saving and investment plans

Trust manager Some popular Charges Minimum investment

trusts managed Monthly Lump sum

Fleming Investment Fleming Claverhouse, purchase 1%, pounds 1 min, pounds 50 max; pounds 40 pounds 400 Trust Management Fleming Japanese sale 1%, pounds 10 min

Foreign & Colonial Foreign & Colonial, 0.2% purchase/sale; pounds 25 pounds 250

Management F&C Pacific sale, pounds 10 min

Henderson Witan Investment Co, 1% purchase/sale reduced pounds 25 pounds 500

Touche Remnant TR City of London to 0.5% for investments of

pounds 15,000

Kleinwort Benson Kleinwort European purchase 0.5%; pounds 25 pounds 500

Inv Management Privatisation, Merchants sale 1%, pounds 10m min

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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