Why not swap 'n' save?

Steve Lodge explains how you can trade in your privatisation shares free of charge
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The Independent Online
Instant profits for investors have become part of privatisation folklore. But even if British Energy comes up trumps when dealings in its shares start tomorrow, here is the sting. Unless you have a lot of shares, selling them may well take a big chunk of any gains.

Most stockbrokers will charge at least pounds 10 for selling British Energy shares, and in many cases more. If, say, you are allocated 300 shares - the minimum amount you could apply for - and the shares go to a healthy premium of 10 per cent, investors might have made just pounds 30 profit. Dealing costs could easily take a third of this.

The problem will have been experienced by many small investors who have acquired little parcels of shares in a range of privatisations over the past decade.

Selling costs also look set to be an annoyance for the millions of people promised free share handouts from building societies, the first of which is due at the end of August when a million-plus National & Provincial members get free Abbey National shares as part of thetakeover of the society.

Someone who has bought a few shares in a range of privatisations could easily be sitting on a tidy sum of thousands of pounds overall and good profits on the money they put in. But much of the return will also be in the form of lots of fiddly dividend cheques for just a few pounds and pence, a pain to cash and easily lost (although it is normally possible to have dividends paid straight into your bank account).

Furthermore those profits could be vulnerable. The stock market is close to its all-time high and many City sages reckon it is heading for a fall. Privatisation shares, in many cases darling performers of the stock market in recent years, are also particularly at risk from the prospect of a Labour government. Labour has threatened a windfall tax on privatised utilities, and as the general election approaches this is likely to undermine those companies' share prices. Crest, the new system of paperless share dealing that starts tomorrow (see page 16), could also prove an additional gripe for small shareholders. For people with share certificates the costs of selling might increase.

A potential solution to these worries and hassles is at hand from City firms that manage investment funds and PEPs. In recent weeks three big names - Flemings, Henderson Touche Remnant and Mercury Asset Management - have launched offers to sell investors' shares for free if the proceeds are reinvested in a fund or PEP with that company. Flemings' offer is available until the end of September for switches into its range of investment trusts; HTR's to the end of August for swaps into its range of investment trusts; and Mercury has no deadline for its PEPs and unit trusts. Mercury claims that a free swap could save investors as much as pounds 150 in selling costs.

As well as these savings, the investment companies advocate swaps as a way of reducing the risks of investing in a single share, or a handful of shares, by switching into a fund that invests across a broader range of investments, or even in different stock markets that look better value than the UK. Stock markets in Japan and Europe are widely seen as less vulnerable to setbacks or crashes.

Swap deals are on offer from a whole range of investment companies but sometimes involve cheap rather than free sales. They can be a useful way of making your savings tax-free by switching into a PEP. Investors switching into investment (rather than unit) trusts also stand to benefit from a recent widening in the so-called discounts at which the shares in these funds trade, making them better value.

But there are catches. While companies will normally take even the smallest of shareholdings, they will often have a minimum amount you must then invest. If the proceeds from your selling add up to less, you will be required to top up with cash. And while you might sell your shares for free, there will normally be charges for investing the proceeds.

Share exchange schemes are aimed at keeping you in the stock market - likely to be good for your savings in the long term - rather than giving you cash. But in at least one instance it is possible to use such schemes as a way of selling for free and getting cash. Legal & General offers a swap deal which, as well as stock market funds and PEPs, includes the option to reinvest in what is called a cash unit trust. This is, in effect, a postal savings account that carries no charges on investment or withdrawals and offers interest of 5.5 per cent. L&G hopes that investors taking this option will subsequently switch into one of its unit trusts or PEPs. But there is nothing to stop investors taking advantage of the free share sale, reinvesting in the cash unit trust, and then withdrawing their money without cost.

The more obvious route for selling is using a stockbroker. It is worth shopping around even with low-cost stockbrokers. Many will have minimum charges of around pounds 10. But at least one firm - City Deal Services (01708 742288) - has a minimum of pounds 5 for holdings worth less than pounds 500. City stockbroker Cazenove (0171-606 1768) has no minimum charge for selling a range of 100 different shares, including National Power, Thames Water and Midlands Electricity. It charges a straight 1 per cent, so small holders stand to benefit.

Finally, any more takeovers of electricity or even water companies will conveniently take decisions out of small shareholders' hands. The City, not the small investor, decides what takeovers go through. But do not worry. The advantage of having your shares bought out in this way is that you should get a good cash price and you won't have to pay stockbrokers' charges for selling.

Free share sale and swap deals

Minimum Investment Worth

investment costs considering

Legal & General pounds 1,000 (cash) - Legal & General

(0800 116622) pounds 3,000 Cash; L&G UK


Flemings pounds 400 0.5% stamp Fleming

(0500 500161) duty Overseas; Fleming


Henderson Touche pounds 500 1% plus 0.5% Witan; Bankers;

Remnant stamp duty TR City of

(0171 638 5757) London*

*Investment trusts on wider than normal discounts