Money: Around the world with a tax-free trust

Stephen Spurdon on a cheaper route to stock market investment
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If you are looking for a cheap, tax-free way to invest in shares from around the world, then try an investment trust ISA.

The new rules setting up individual savings accounts (ISAs) allow you to hold up to pounds 7,000 in shares during this tax year. You may be more familiar with unit trusts and Oeics (open ended investment company) savings schemes, but investment trusts are usually a cheaper route to stock market investment.

The main reason for the price difference is unit trusts/Oeics may have an initial charge of up to 5 per cent - of which 3 per cent can go to a financial adviser as commission - there is usually no similar charge on investment trusts (so it's hardly surprising that many independent financial advisers are keener on the unit trust/Oeic ISAs which pay them commission).

Annual management charges on investment trusts are also much lower, ranging from 0.5 per cent to 0.75 per cent, while unit trust/Oeic annual management charges usually go from 1.25 per cent to 1.5 per cent. The exception here is unit trust tracker funds with no initial charge and annual charges of between 0.3 per cent and 1 per cent.

Most of the investment trust management groups are offering both mini and maxi versions of their ISA, with stocks and shares as the only investment. A few allow you to combine cash with shares in the maxi version of their ISA. These firms include AIB Govett, Alliance Trust and Fidelity Investments.

You can save monthly from pounds 30 upwards and minimum lump sums are usually pounds 1,000.

If you want a wide choice of investments, look at management groups with a range of 10 or more funds. Names to look at are Aberdeen, Dresdner, Edinburgh, Fleming, Foreign & Colonial, Friends Ivory & Sime, Gartmore, Henderson and Invesco.

Friends Ivory & Sime offers two managed portfolios for income or growth, drawing on other managers' top funds.

Although Alliance Trust Savings only offers two own-managed funds, you can invest in a wide range of other management groups' funds as well as equities, gilts and bonds through its ISA. Fidelity Investments' ISA is unusual in offering a choice of both Oeics and investment trusts.

Unit trusts/Oeics and investment trusts are set up in very different ways. The price you pay for each unit or share in a unit trust/Oeic reflects the value of the underlying investments. An investment trust's share price is actively quoted on the Stock Exchange and the value of the underlying investments may be less or more than the share price.

Most investment trusts are currently at discounts of 10 to 15 per cent or more to their net asset value (what the underlying shares are worth). This is a bargain - if you pick a trust with the capacity to perform better in future. Read round the subject before you sign up: the AITC produces some useful factsheets and literature from some of the providers, such as Fleming and Fidelity, is very clear.

Finally, it may be that the investment trust you want to invest in is not managed by the investment trust management groups that offer ISAs. Investors may have to use an ISA provided by such organisations as stockbrokers. Such accounts usually cost more than those offered by fund managers.

n For a factsheet from the Association of Investment Trust Companies (AITC) about investment trust ISAs, call 0171-431 5222.


Aberdeen Asset Managers, 0500 000040

AIB Govett, 0845 300 9090

Alliance Trust Savings, 01382 201900

Baillie Gifford, 0800 917 2112

BFS Investments, 01483 237 773

Edinburgh Fund M'gers, 0800 838993

Fidelity Investments, 0800 414171

Finsbury Asset M'gement, 0990 502017

Fleming, 0500 500324

Foreign & Colonial, 0171-454 1415

Friends Ivory & Sime, 0345 992299

Gartmore, 0800 289336

Henderson Investors, 0800 106 106

Invesco Asset Managers, 0800 010 333

Investec Guinness Flight, 0181-477 5090

Law Debenture, 0171-606 5451

Murray Johnstone, 0800 289978

Olim, 0171-439 4400

Perpetual, 01491 416123

Schroder, 0800 526535

Scottish Investment Trust, 0800 424422

Stewart Ivory, 0800 567 100