Bargain hunters look no further

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The Independent Online
I'VE YET to make it to the January sales. But I don't expect to find as good value as is now creeping into the tax-free investment world of personal equity plans.

PEP buyers have never had it so cheap. Last week saw Legal & General in effect halve the price of its UK Index Tracking PEP. The only charge investors face now is 0.5 per cent of the value of their PEP a year. Compared with all too many traditional PEPs that take up to three times as much annually - plus a one-off chunk sometimes amounting to more than 5 per cent - that's good.

Better still, savers prepared to buy the same L&G PEP for the next tax year will get a refund equal to one annual charge, worth up to another pounds 30. In effect, that means free investment for one PEP for a year.

But it doesn't have to stop there. L&G is paying financial advisers to sell this PEP. So by buying through a discount broker, investors can get a rebate of some of this commission and so increase their period of charge-free investment. London-based Chelsea Financial Services will grant a rebate of 0.5 per cent of whatever you invest. Every 0.5 per cent means another year of charge-free investment.

So what's the catch? Will it perform? There are of course no guarantees. But there is no reason to doubt the PEP will do broadly what its Index Tracker name suggests - match the performance of the stock market. The tracker investment process is straightforward and L&G has plenty of experience in running funds of this kind.

That said, trackers - bizarre though it may seem - do actually tend to underperform slightly as a result of their charges. But L&G's minimal charges should make it potentially the best among trackers. And how will that stack up? Historically, stock market performance has been more than enough to beat the vast majority of more ambitious PEP rivals, which while trying to beat the market have generally fallen short. Worse still, finding that market-beater is all too much of a lottery. Simply picking the cheapest tracker is a much safer bet.

One caveat is that it's difficult to get excited about the UK stock market's short-term outlook. A setback, correction - crash even - seems more likely than a repeat of last year's returns of 20 per cent.

Fortunately, however, savers determined to use this year's PEP allowance have until the end of the tax year in April. With the market at this all- time high and the prospect of further attractive PEP deals, there's no reason to hurry.

HOWEVER, my real quandary is that what little money I can afford to invest I earmarked for Asia in my new year's investment resolutions, which I outlined in this column last week. But investment companies with Asian funds are not exactly champing at the bit to cut costs (in addition, Asian funds are generally not available in tax-free PEP form). A free directory from the unit trust trade body Autif (called Unit Trusts - The Directory, available on 0181-207 1361) lists charges on most of these funds of 1.5 per cent a year, with up to 6 per cent upfront. Such fees seem to reflect the ability of these markets to deliver high returns rather than fair rewards for the managers.

Time for cost competition to head east...