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www.InvestmentGuide.co.uk Other types OEICS
Investment trusts
How Best to Invest in Stocks and Shares
Ethical unit trusts avoid investment in companies which
produce or sell tobacco and deal in armaments. Most funds avoid firms which
carry out environmental damage, produce or deal in alcoholic beverage, do
animal testing, provide gambling services, nuclear power, support oppressive
regimes or deal in pornography.
Some of the funds also have positive
criteria where they choose companies which are supposed to have community
involvement, good employee welfare rights, packaging and a positive
environmental policy. There is quite a lot of variation between managers as to
how strictly or widely the postive or negative criteria are applied. You invest
in a fund of shares managed by professionals. Like an ordinary unit trust or
OEIC, the units closely reflect the value of the shares held within the fund.
You may receive an income and hope to make a capital gain by selling for more
than you paid, but you may end up with a loss by selling for less.
Who can invest Anyone.
How worthwhile Potentially good value as a long-term investment for taxpayers if you buy and sell at the right time; poor value if you don't. Some trusts have high charges and there is difficulty in predicting which trust will do well in the future. Legal & General and NPI have tracker funds excluding unethical companies in the index. Most of these funds can also be used within a Maxi-ISA. These funds are something of an oxymoron - if you think investing in a share fund itself isn't ethical, then how can there be 'ethical' funds.
Minimum Usually £500 or £1,000 initially. £30 to £50 monthly.
Maximum None.
Suitable Lump sums.
Money back At the market price; usually a few days, at most 10 working days.
Interest Variable. Called distribution. The before tax interest is called yield; different types of trusts have different yields. The yield is usually calculated after deduction of the yearly fund charge. Some funds 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 Usually half-yearly. Some managers can arrange a monthly income. By cheque to you or direct to a bank account. Some funds have accumulation units which accumulate income, with others your income automatically buys extra units at an extra charge.
Tax 10% tax is deducted from the distribution (called a tax credit) whether or not you accumulate it. Higher rate taxpayers have to pay extra; basic and non-taxpayers don't. The first distribution you receive after buying the units consists partly of interest and partly of an equalisation payment. This equalisation payment counts as a return of capital and is not taxable.Gains on units are liable to capital gains tax though the managers pay no capital gains tax if they make gains on shares held by the trust. You can avoid tax by investing through a Unit Trust Maxi ISA.
Fees to pay Initial difference between buying and selling price of 5%-6.4%. Yearly charge 1%-1¾%, often 1½% deducted from income or capital. 1% a year.
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 are designated with the child's name or initials.
Risk High but not as risky as buying individual shares. The value of units goes down as well as up. The shares owned by the trust are held by a Government approved trustee.
How to invest A guide 'Choosing an Ethical Investment Fund' is available from EIRIS. Phone the managers of the trust you are interested in and ask for their literature; you can buy by phone too. They will send you a contract note and you then send your money. Sales can also be made by phone. Avoid those with high charges, i.e. 1½% a year and above.
Where from There around 60 funds to choose from. Take a look atthis site find out which fund invests in what or for a whole survey click here.
Other types OEICS
Investment trusts
How Best to Invest in Stocks and Shares
Last updated 7
November 2011