Investing For Growth: Put your PEP into the pot

A PEP is not itself an investment: it is a "wrapper" placed round a stock market investment to protect your returns from tax. You benefit from the full growth (less any charges) in the shares or bonds held in the underlying pooled fund. This will be one of three types of investment fund: unit trusts, investment trusts or open-ended investment companies (Oeics, pronounced "Oiks").

All three give small investors easy access to the stock market at a relatively low price because fund managers can buy shares in bulk. They also spread your risk by buying a broad range of investments (see box below).

Patrick Connolly, at Chart-well Investment Management in Bath, says unit trusts are far more popular than investment trusts but not necessarily for rational reasons: "Most investors understand unit trusts better and most financial advisers will push them because investment trusts don't pay commission."

Investment trust charges are lower and Mr Connolly says their 10-year performance often beats unit trusts on fees alone. "Yet very few investment trust PEPs are sold and it will be exactly the same picture under the new individual savings accounts. Investment trusts are usually recommended by stockbrokers or private investors with a bit of specialist knowledge."

He says differences between unit trusts and Oeics remain marginal and most investors pay little attention to which of these two mechanisms they use.

Donna Bradshaw, of Fiona Price & Partners, a firm of independent financial advisers, recommends a unit trust for smaller investors using up their annual PEP allowance, but suggests investment trusts to people with larger portfolios who are happy to take a greater risk.

"Investment trusts are good value because you can buy them at quite a significant discount at the moment, around 15 or 16 per cent. You will see the usual benefits of share growth plus a narrowing in this discount over time," she says.

PEPs will be replaced by ISAs in April but PEPs taken out before then will retain their tax advantages. "ISAs will essentially be the same product with a new name and a slightly lower limit for investment," says Ms Bradshaw. In the first year you can invest up to pounds 7,000 in an ISA, pounds 5,000 thereafter.

Factsheets: Unit Trust Information Service, 0181-207 1361; Association of Investment Trust Companies, 0171-431 5222. Websites:; (Hemington Scott); (Interactive Investor); www.investment- (Association of Unit Trusts and Investment Funds);; www.; www.

pooled investments

Unit trusts

These invest in shares or bonds. The funds issue units, which represent the value of an underlying portfolio of investments. The price you pay relates directly to the value of these assets. Charges can rise to more than 5 per cent initially, with further annual management fees of up to 1.5 per cent. As with Oeics and investment trusts, you can invest through lump-sum or regular savings and bring them inside a PEP wrapper.


These arrived in 1997, and some of the leading investment houses have converted from unit trusts. One main benefit is that Oeic units cost the same whether you are buying into the fund or selling up, whereas unit trusts have one price for buying and another for selling. Charges are slightly lower and paid separately rather than being buried within the fund.

Investment trusts

These are quoted companies that invest in other companies, rather than trading in goods and services. You can buy shares in an investment trust, which rise and fall in price according to how much investors are willing to pay for them. There is no direct link between the share price and the value of a trust's underlying assets. The share price can be lower than the value of the trust (known as a discount) or higher (a premium).

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
a clockwork orange, stanley kubrick
The Tesco Hudl2: An exceptional Android tablet that's powerful, well-built and outstanding value

Life and Style
food + drinkAuthor DBC Pierre presents his guide to the morning after
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas