Special Report On Personal Equity Plans: Increasing the spread to reduce the risk: Self-selection has lost favour with small investors since the introduction of unit and investment trusts. Alison Eadie reports

INDIVIDUAL share PEPs have been abandoned by some fund managers since the government changed the rules to allow the pounds 6,000 annual investment to be invested wholly in qualifying unit or investment trusts. Administratively, managers find it cheaper and less time-consuming to manage collective PEPs.

Those that still offer share PEPs find that the self-select option is declining in popularity. Save and Prosper's Dealing Plan allows investors to choose from the UK's top 300 companies by capitalisation, but it gives no advice. Save & Prosper charges an annual fee of pounds 25 per share, making it cheap for large portfolios with few shares, but expensive for small portfolios. Of the pounds 528m it has in PEPs, only pounds 107m is in the Dealing Plan and half of that is in investment trusts.

'The bulk of people want either a managed or a collective vehicle like a unit trust,' said Ken Emery, technical director for PEPs. Save and Prosper's Managed Portfolio invests in 14 blue chip shares and has pounds 339m under management.

The self-select share PEP is more for high net worth individuals with a reasonable sized portfolio worth upwards of pounds 50,000, Mr Emery added. Smaller investors need to spread their risk through a collective vehicle.

Even some of the managed PEPs are diversifying to increase the spread and reduce the risk. Invesco MIM's Tax Haven managed share PEPs recently increased the number of shares in the portfolio to 20 from the previous eight to 12.

Self-select share PEPs are available from stockbrokers whose private clients are most suited to such investments, as they have more experience buying equities. Charging structures and levels vary.

Henderson Crosthwaite, the stockbroking arm of the merchant bank Guinness Mahon, charges a flat pounds 50 fee for setting up a self- select PEP, an annual management fee of 1 per cent and dealing commission of 1.25 per cent. From 6 April the management fee will come down to 0.75 per cent and the dealing commission to 1 per cent, subject to a pounds 25 minimum charge.

Pilling and Co, the independent stockbrokers, only offer self-select PEPs and unusually charge no setting up fee or annual management fee. The firm makes a pounds 6.75 charge for the reclamation of the tax element of each dividend from the Inland Revenue and therefore advises clients to choose shares which pay out no more than twice a year. It also charges 1.65 per cent dealing commission subject to a minimum pounds 30.

Share PEPs have proved useful to high net worth individuals, who can transfer chunks of their existing portfolio into a PEP each year, being careful to keep the amount Pepped within their capital gains tax allowance.

'Bed and Pepping' is a variation on the old theme of bed and breakfasting. Bed and breakfasting - selling and buying back shares to crystallise a capital gains tax liability - involved overnight exposure to the market. Bed and Pepping can be done in a day.

The Inland Revenue stipulates, however, that money to buy the shares must be in the PEP before the shares are sold and rebought. Investors have two options. They can either put the money on deposit with their broker, sell and buy back and wait till account day to receive the shares - or sell, transfer the money on account day to the PEP and then buy back. The second option runs the risk of market vagaries in the intervening days.