You're first in line with bond PEPs

IF EVER an investment has found its moment, it is the corporate bond PEP. With stock markets in decline, gilts and fixed-interest stocks are increasing their appeal to investors, especially those looking for a reasonable income.

Corporate bond PEPs give investors a reasonable level of tax-free income and the possibility of capital gains. Although they have only been available since July 1995, there are now more than 60, mostly yielding between 5.5 and 7 per cent or more, free of all income and capital gains tax .

Less risky than traditional PEPs, their unit prices tend to be less volatile as they invest in fixed-interest bonds and stock. These are, in effect, IOUs issued by companies with regular payment of interest and the issuers promising to repay capital on a fixed date.

These are issued in various forms including debentures, Euro-bonds, preference shares and convertibles. The interest must be paid on them before a company can offer dividends to ordinary shareholders.

You can create a self-select corporate bond. But as this is very much a professional's market, investors should look to managed portfolios.

While corporate bond PEPs offer a low-risk investment, this does not mean no risk. If a company goes bust, loans cannot often be repaid. In practice this is unlikely to happen because only blue-chip companies issue corporate bonds.

To sort out the best corporate bond PEPs, look at the yields but also take the charges into account. Then, as income is the main concern, those with the least risk will have the most appeal. Less conservative managers invest in convertibles and preference shares, but in falling markets these suffer alongside ordinary shares.

Remember, you can transfer PEPs into a corporate bond PEP. So this could provide you with a safe parking space for any profits you have made during the current turbulence.

recommended corporate bonds

Recommendations of independent financial advisers

Fidelity Moneybuilder Income: minimum investment pounds 3,000; initial charge 5.25%; annual charge 0.7% from income. Tel: 0800 414161.

M&G Corporate Bond PEP: minimum investment pounds 1,000; withdrawal charge of 4.5% reducing to nil after five years; 1% annual charge from income. Tel: 01245 39039.

CGU Monthly Income Plus: minimum investment pounds 5,000 to receive monthly income; initial charge 4%; annual charge 1.25% from income. Tel: 0181- 681 222.

Standard Life: minimum charge pounds 1,000; initial charge 4%; annual charge 0.95% from income. Tel: 0800 333353.

Virgin Income: minimum investment pounds 1,000; no initial charge; 0.7% annual charge from income. Tel: 0345 959595.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat