Investing for growth: Take the market on trust

IF YOU don't have the time to build up your own collection of hand-picked shares, unit trusts and investment trusts are a lower-risk, affordable way to invest in the stock market.

Unit trusts and investment trusts are known as collective investments, although the way each operates is slightly different. As solid first-time buys, Tim Cockerill, investment director at Whitechurch Securities in Bristol, suggests the Gartmore Select European and Fidelity UK Growth unit trusts, and the Perpetual Income and Growth investment trusts. For first-time investors, he says unit trusts are generally considered lower risk than investment trusts.

If you need help to make a choice from the 336 investment trusts and 1,728 unit trusts, talk to an independent financial adviser. Independent Financial Advice Promotions (IFAP) will give you a list of three IFAs in your area. You won't pay for the advice but if you buy anything the IFA gets paid commission by the product provider. Fees for advice are built into the initial charge paid on most unit trusts but you'll pay much less if you make up your own mind about which unit trust you want and buy from a discount broker. The two organisations that represent investment trust and unit trust companies both produce free factsheets (see "contacts" at the foot of this article).

Don't rely on advertising claims. All figures quoted are for past performance and no one knows what will happen in the future. The experts judge a fund's performance by comparing it with industry-recognised benchmarks, such as the FT-SE 100.

If you are a first-time investor, an index-tracker unit trust is a good bet. Trackers are cheap, and they simply follow stock market indices. Over the past five years they have out-performed more than 90 per cent of managed unit trusts.You should not be paying more than 0.5 per cent a year in management charges. Go for a big fund; in general, the more money there is invested, the smaller the margin for error. Virgin and Legal & General offer huge All Share tracking funds.

You could also consider an open-ended investment company (Oeic). Launched in the UK in 1997, Oeics could eventually replace unit and investment trusts. They combine features of both because the size of the fund contracts and expands, like unit trusts, but they are quoted companies, like investment trusts. Their main advantage is that the price at which you buy and sell units is the same. They can also be more flexible because many operate umbrella funds, so if your investment aims change, you can easily switch funds.

Contacts: Unit Trust Information Service on 0181-207 1361, or the Association of Investment Trust Companies on 0171-431 5222. Financial Discounts Direct has a useful free booklet on how to use a discount broker, 0500 498 477 or IFA Promotion, 0117-971 1177; Legal & General, 0500 116622; Virgin, 0345 900900.