Understanding the Stock arket: Club together for some profitable lessons

"It's a hobby that will bring you fun, friends, excitement, hours of pleasure and a wider understanding of shares," says Gill Nott, the chief executive of ProShare. The pastime is participating in an investment club.

An investment club is a group of people who meet regularly and pool together some cash to invest, primarily in the stock market. There are 1,800 clubs in the UK with an estimated 30,000+ members. The most successful club of 1997 made a 100 per cent gain on their original investment in just 12 months. However, not all have such success. The Quayside Ladies from Liverpool have won awards for the way they ran their club - having fun while learning about the stock market. But, in the process, they lost 10 per cent of their subscriptions.

Experience shows that it is best to start a club among your own friends. It is important to limit the monthly subscriptions to an affordable amount, typically pounds 25-pounds 30. Ground rules must be established from the beginning. Thankfully, help is at hand in the form of the ProShare Investment Club Manual. It is a complete guide to starting and running an investment club.

Legally, most UK investment clubs are organised as partnerships. This eliminates the potential problems of corporation tax. To qualify for the "Simplified Scheme", a club must satisfy five conditions: the club shall have no more than 20 members at any one time; subscriptions must not exceed pounds 1,000 per member each year; the total net gains of the club most not exceed pounds 5,000 in a year; the average investment per head based on cost price may not exceed pounds 5,000; all members are to agree every year as to the apportionment of capital gains liability.

When the Revenue has agreed a club qualifies they will issue forms 185-2, one for each member. At the end of the year, the club treasurer should apportion the club's capital gains/losses and dividends/tax credits among the members in accordance with the club's rules.

The attraction is that everyone, whether regular investors or newcomers, will have something to contribute to the discussion of a potential share purchase.

Special Offer

`The Independent' has agreed a discount for ProShare's Investment Club Manual. Copies are available for pounds 18 as opposed to pounds 25. To order, call 0171-394 5200 with your credit card details and mention this article.

ProShare is an independent, not-for-profit organisation funded by the London Stock Exchange and the broking industry. It exists to promote the benefit of owning shares.