Take your pick from 1,200

Income or growth? High risks or security?
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The Independent Online
It's easy to give yourself a headache when it comes to finding the right PEP, since there are more than 1,200 from which to choose - a figure that does not include self-select schemes in which you make your own investment decisions.

Whether you are a first-time buyer or a seasoned investor, you should think carefully before deciding which scheme to invest in this tax year.

The first thing to consider is what you want from your PEP - are you looking for income or capital growth?

If you want an income, you should check what the manager hopes to achieve, how often you will be paid and if you can vary the level of income you take.

If you are looking for a high income, such as 8 per cent a year, you cannot expect your PEP to achieve much capital growth. High income seekers tend to be steered towards corporate bond PEPs, although many general PEPs also invest primarily for income.

Those in search of capital growth should look for a PEP with this as their main objective. Next, you should consider how much risk you are prepared to take. The greater the risk the higher the potential rewards. As the table shows, however, the average growth from many PEPs is far higher than returns on sums left in a building society.

There are some PEPs which give the option of taking variable amounts of income or leaving the capital to grow. The GA PEP offers a choice of two unit trusts - income and growth - which allow income to be taken. But the income may also be reinvested.

Some investment sectors are more risky than others. Funds investing in new small companies have a higher risk profile than funds which invest in a wide range of large well-established companies. Similarly, a single company PEP - where you are relying on the performance of just one company - can be more hazardous than investing in a general PEP.

Next you need to decide if you want to manage the investments in your PEP or if you want to buy them ready-packaged in a fund. Some managers offer self-select PEPs.

Once you have narrowed the choice down you should start to look at the individual performance of PEP funds, as it does give some indication of how successful a fund manager has been in the past.

You also should consider the quality of the PEP manager. Does the investment house have a good track record across its whole range of funds? Sometimes it will be down to a single "star" manager - if that one individual were to leave how would the fund fare?

The volatility of funds also is important. Some funds grow steadily, others can rise and fall dramatically in value. So if you are not of a strong constitution this type of fund may not be for you

Micropal, the fund analyst, gives funds a volatility rating based on past performance. If you are considering a volatile fund, be sure to invest only money which you will not need at short notice because you do not want to have to cash in your investment while the fund is on a downward spiral.

Charges vary between schemes. Self-select PEPs and others where the underlying fund invests in all or most of the shares of a particular index - known as trackers - have low charges. Where the fund is actively managed, costs are likely to be higher.

While it may be tempting to opt for a PEP with low charges, you should never use this as the sole factor for choosing a PEP. As the tax year draws to a close, many PEP managers offer discounts on their PEP charges to try to attract last minute business.

Many of the big fund managers attract your business directly from advertisements like those on these pages. But there are other ways to invest in a tax- free plan, including the PEP "boutiques" or discount shops which offer a range of plans, including those from well-known investment houses.

These discount brokers work on commission and win business by splitting this commission with their customers in the form of a discount on the fund manager's charges.

Discount brokers receive commission for every PEP they sell. So even if you come across a plan with no initial charges, such as M&G and Fidelity's no-fee PEPs, you may still be able to get these cheaper by going through a discount broker.

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