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www.InvestmentGuide.co.uk STOCK
(Unit Trust or OEIC Invested in Fixed Interest and/or Gilts)
You invest in a fund of fixed interest stocks managed by professionals. The units closely reflect the value of the stocks held within the trust. The aim of some trusts is to achieve capital growth, these trusts have a low yield. 'Income' trusts have a higher yield. Corporate bond funds fall in value when long term interest rates rise or are expected to rise. A relatively small rise in interest rates can result in a large change in the capital value. For instance if rates rose on average from 4% to 5%, the value of bonds would drop by 20%; a yield rise from 5% to 6% would show a fall of about 16%.
Who can invest Anyone.
How worthwhile Poor value for large amounts or higher rate tax or capital gains tax payers. Could be a risk to your capital if interest rates rise. Consider investing directly in corporate bonds or gilts with a fixed maturity date, see Corporate Bonds or Stock Government Fixed Interest. If you do want this type of fund, you can save income tax by investing in company fixed interest stocks through Stock ISA although not all ISA managers will let you invest directly in corporate bonds rather than bond funds. If you want this type of investment in a foreign currency, basic taxpayers see OEIC Invested in a Fund of Eurobonds. Higher rate taxpayers and non-taxpayers see Offshore Stock and Bond Fund.
Minimum £500 to £1,000.
Maximum None.
Suitable Lump sums.
Money back Usually a few days, at most 10 working days.
Interest Variable. Called distribution. The before tax interest is called yield. The yield is usually calculated after deduction of the yearly fund charge. Some trusts calculate the yield without deducting the charge which gives the impression of a higher yield. These are marked with a 'C' in the Financial Times unit trust prices page.
Interest paid Half-yearly or quarterly by cheque to you or direct to a bank account.
Tax Tax is deducted from the interest. Non-taxpayers can reclaim the tax from the Inland Revenue. Higher rate taxpayers have to pay extra, basic taxpayers and 20% taxpayers don't. Gains on units are liable to capital gains tax even though direct investments in most corporate bonds is exempt from capital gains tax. The managers pay no capital gains tax when they make gains on stock held within the trust or open ended investment company. To avoid the capital gains tax you need to invest through a Bond or stock Maxi ISA.
Fees to pay Initial charge 1%-5% included in difference between buying and selling price of 1½%-5%. Yearly charge ¾%-1% deducted from your income.
Passbook None. Statement or certificate sent with each transaction. Report and distribution voucher usually half-yearly.
Children Under 18 units should be held in an adult's name and can be designated with the child's name or initials.
Risk Some. The value of units goes down as well as up as interest rates are expected to change. The stocks in the trust are held by a Government approved trustee to ensure the managers invest in what they say they do.
How to invest Get advice from on the best time to buy (and sell) and which trust to choose. Purchases and sales can be made by phone so you know what price you get.
Where from Around 100 trusts from many unit trust groups. Some only let you invest through a Bond or stock Maxi ISA.
Last updated 14
January 2012.