Investments

ISAs

Individual Savings Accounts, or ISAs for short, were introduced by the Government on April 6th 1999 to replace PEPs and TESSA schemes as products where your savings are held in a tax-efficient environment.  They enable your savings to be held in the form of stocks and shares, cash or life assurance, or any combination of these three asset types. If you are looking to invest in stocks and shares, then an ISA is the best place to start, as it is one of the most tax-efficient way of saving for the future.

When choosing to invest, one of the first things to consider is whether you wish to receive an income from your investment or whether you are aiming instead for capital growth.  Choosing the right ISA from the right company for your personal circumstances is an important decision to make.  We recommend that you seek professional independent financial advice before committing yourself to an investment.

Unit Trust

A unit trust is a legal vehicle used for investment purposes, in which the money subscribed by unit holders is invested for some common investment aim, usually in ordinary shares. Investors may subscribe to units, which can be created if necessary, at some subsequent date the investor may sell the units back to the managers, in which case they are cancelled or sold on to another investor. The fund is therefore 'open ended' and the amount of money under management can vary according to the confidence which investors have in that particular unit trust's future. The rules for calculating the value of unit trusts are laid down very precisely and apart from expenses, the value of each unit will exactly reflect the value of the underlying securities in which the money was invested.

Investment Trust

An investment trust is a company, set up in just the same way as any other company and may be quoted on the Stock Exchange. However, instead of carrying out any industrial or commercial activity, the investment trust simply holds shares in other companies, sometimes of a specialist nature, sometimes a broad portfolio of British or foreign stocks.

Because the share price of quoted investment trusts can vary, according to the supply and demand for the shares in the market, the value of the investment trust shares does not always reflect the value of the underlying portfolio held by the company itself. Usually, the share price is at a discount compared with the asset value. The managers of an investment trust (unlike the managers of a unit trust) are in possession of the money which has been subscribed at the time of the issue of the investment trust shares, either indefinitely or (in some cases) until an agreed date when the company is wound up. For this reason investment trusts (as opposed to unit trusts) can take a long term view and a vehicle of this kind is perhaps most useful for investments for the long term in, say, developing industries or developing countries.

OEICS

Open Ended Investment Companies (OEICs) have been available since the beginning of 1997. The structure of the OEIC builds upon the best features of unit trusts and could be described as a modern alternative. Several major companies have converted part of their unit trust ranges to OEICs.

OEICs and unit trusts operate the same investment principle of pooling investor's money together to minimise risk by buying a wide range of investments. In the same way as with unit trusts, the value of investments and any income that may be generated can go down as well as up. However, instead of owning units in a unit trust, investors own shares in the OEIC. An OEIC provides the investor with a similar level of protection as a unit trust but is governed by company law rather than trust law.  Although OEICs may be new to UK investors, their introduction brings the UK in line with the US and Europe, where investors are already familiar with similar investment structures.

One of the key features of an OEIC is that there is only one price at which shares are either bought or sold, which is a simpler basis than the different buying and selling prices of unit trusts. It also allows for charges to be detailed clearly and separately.

PEPs
 

Personal Equity Plans (PEPs) have been available since 1987. Like an ISA, a PEP provides a tax-efficient wrapper around an investment in a Unit Trust, Open Ended Investment Company, Investment Trust or shares.

PEPs have been widely recognised as one of the most efficient ways of investing in the stockmarket either directly or via unit trusts and were often seen as a core long-term holding in any investment portfolio. Their uses are many - pension supplement, mortgage repayment, school fees, provision for a significant purchase or just a home for spare money to be invested rather than merely saved.

PEPs have been replaced with ISAs.  As a result, you can no longer invest new money in a PEP, but can continue to hold an existing one for as long as you like, or transfer an existing PEP to a new provider.