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www.InvestmentGuide.co.uk How Best to Invest in Shares
Investment trusts
BOND or STOCK
Lump sum invested in loan stock issued by a company for a fixed term at a fixed rate of interest where you have the right to convert the stock into Ordinary Shares of the company at a fixed price before or between fixed dates in the future. If the stock is not converted, it can continue to pay interest until it is repaid in full at the end of the term just like Bond or Stock Loan and Debenture. The stock value therefore tends to fluctuate in line with the value of ordinary shares of the company in which there are conversion rights but pays a higher income yield which is fixed rather than fluctuating. If the shares perform poorly, the value of the stock drops to what it would be if there were no conversion rights.
Who can invest Anyone.
How worthwhile Similar to Shares Ordinary Quoted but with a higher but fixed income. Worth considering for taxpayers who think shares have too low an income. Higher rate taxpayers are probably best to choose instead Shares Ordinary Quoted.
Minimum Investing direct: £7,000-£10,000 for a portfolio of stocks (and ordinary shares) bought for say £1,000 each in 7-10 companies. Lower amounts not worthwhile because of minimum commission and lack of a diversified portfolio. Through a unit trust: £500 to £1,000 with £50 to £250 additions.
Maximum None.
Suitable Lump sums.
Money back At end of term. Or 5 working days if you sell earlier when you get the market price; same if you have converted to ordinary shares except you sell the shares. Once converted, there is no longer any fixed term or higher inome.
Interest Fixed. The before tax income is called the yield which varies between different companies. It is normally quite a lot higher than the yield on the shares which you have the right to convert to. Once converted the yield is variable.
Interest paid Usually half-yearly by cheque to you or direct to a bank account.
Tax 20% tax is deducted from the interest. Non-taxpayers can reclaim the tax from the Inland Revenue. Higher rate taxpayers pay extra; basic taxpayers don't. Gains on convertible bonds and stocks are liable to capital gains tax although gains on ordinary loan and debenture stocks are exempt.
Fees to pay Investing direct: when you buy: Stockbrokers commission varies: Around 1½%, min. £15 to £30; plus stamp duty ½%. Commission only when you sell. Through a unit trust: 3% to 5¼% initial for trusts listed here. 1% yearly.
Passbook None. Stock certificate from the company you invest in or statement of ownership from your stockbroker if your shares are held by your stockbroker as nominee. Nominee holdings will increasingly become difficult to avoid under Crest.
Children Under 18 stock should be held in an adult's name and can be designated with the child's name or initials.
Risk Not as high as Ordinary Shares but the value of convertible loan stocks go down as well as up.
How to invest You can invest through a unit trust which specialises in these types of stock or do your own research or get advice from a stockbroker. Buy and sell by phone to stockbroker if they know you.
Where from Investing direct: A stockbroker or an on-line stockbroker. Through a unit trust: Get advice from an Independent Financial Adviser preferably one who gives a rebate of his initial commission.
Other types of Bond or Stock
How Best to Invest in Shares
Last updated 17
December 2007.