Your Money: Pile 'em high, sell 'em cheap

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The Independent Online
IT IS SALE time again and it looks as though sober- suited City executives are catching the price-cutting bug from Harrods, Comet and the rest. But price cuts from fund managers are set to be permanent.

Last month, Fidelity Investments announced a cut in the initial charges on its personal equity plans from 5.25 per cent to 2 per cent. Do not be too surprised to hear something similar from at least one other big fund manager soon. Fidelity's quid pro quo for cutting charges was the introduction of a range of early-redemption penalties designed to claw back the discount if you take money out of the Pep in the first three years.

There has been only a hint of competition over charges for unit trusts and Peps until now. Before the stock market crash in 1987, fund managers did not need to worry about charges because returns were enough to satisfy investors. But with equity investments in all but a few of the world's most volatile markets still producing only pedestrian returns, fund managers must be thinking the 'pile 'em high, sell 'em cheap' philosophy is worth a try.

The price cuts are welcome, although the appearance of early-redemption penalties is uncomfortably reminiscent of the charging structures beloved of the life industry. They are an incentive for investors to take extra care when choosing a manager so that they do not get stung if they try to take flight from poor Pep performance.

PRICE CUTS alone may not be enough to persuade people to commit money to shares and unit trusts. After all, deep discounts have not done a lot to persuade people to take out mortgages. And the pounds 15.8m committed to the National Savings First Option Bond in the first three days are yet another reminder of how difficult it is to dissuade people from deposit- based investments. With inflation at 3.9 per cent, the 7.75 per cent net rate available on sums between pounds 1,000 and pounds 20,000 from the bond means a real return of almost 4 per cent.

Only a rise in inflation will erode that over the next 12 months because the bond's rate is fixed for that period. It may not seem over-generous, but set against the 1.03 per cent average return on a UK growth-oriented unit trust in the last 12 months, it is not to be sniffed at.

The bond has been quite skilfully designed. The minimum investment is pounds 1,000, just the sort of sum that would not be missed too badly from a rainy-day fund built up to pay the mortgage if a redundancy notice lands on the desk. Similarly, it would be a safe haven for cash from redundancy payments already tucked safely into the bank or building society.

Higher-rate taxpayers can do better elsewhere - with a Tessa account or with the 37th issue of National Savings Certificates, which have a tax-free rate of 8 per cent. But both require a five-year commitment and are more suited to the really serious savers. Also, most Tessa rates are variable.

The fact that National Savings has received several pounds 250,000 deposits into the First Option Bond - the maximum investment - indicates that some better off individuals, possibly paying higher rate tax, are taking this product seriously too.

Some building societies are starting to get agitated about competition from the new bond and are wondering how they are going to meet the competition without increasing mortgage rates. They will be reluctant to do that, but they could start to cut back on those special discounts. Mortgage hunters take note.

SURVEYS are the latest craze for companies wanting to catch the public's eye. The idea is that you commission a report and hope to gather a little publicity for the conclusions. If the results from a survey published last week by Gallup (commissioned by Acuma, the financial planning arm of American Express) is to be believed, the British are extremely troubled about money.

On the one hand we are deeply distressed, with one person in five unable to sleep because they are worried about money. This is not surprising since two out of five think that making money is as important as love and relationships. But 56 per cent have no idea how much they have in their bank account.

The 1990s are not going to be a get-rich-quick decade. Less worry and a little modest book-keeping might do wonders for finances and, in the long run, that rare 1990s commodity - confidence.

Vivien Goldsmith is on holiday.