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trusts
How Best to Invest in Stocks and
Shares
A commitment to save a fixed minimum amount regularly, usually monthly, which is invested in units of a unit trust (a fund of stocks and shares managed by professionals). The units closely reflect the value of the stocks and shares held within the trust. You can make additional savings in any month. The plan can be stopped at any time; you either sell the units back to the managers at the current market price or continue holding the units as an ordinary unit trust. See OEIC Index Tracker or OEIC Ethical Fund to help decide which trust to invest in.
Who can invest Anyone.
How worthwhile Flexible and potentially good value for taxpayers who want to link their regular savings to the value of a fund of stocks and shares provided you avoid trusts with high charges. If you have less than £7,200 a year (£600 a month) consider instead Unit Trust Maxi ISA. Compare with Investment Trust Savings Plan which usually have lower charges. Unsuitable for non-taxpayers.
Minimum £20 to £100 a month, often £50 a month. You can buy more when you feel like.
Maximum None.
Money back Within 1-2 weeks. Units are sold at the current market price. Some companies allow partial withdrawals.
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 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 Accumulated within the trust or to buy extra units at a charge.
Tax 10% tax is deducted from the distribution (called a tax credit) whether or not you accumulate it. Non-taxpayers cannot reclaim the tax from the Inland Revenue. Higher rate taxpayers have to pay extra; basic 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 all tax by investing through a OEIC Maxi ISA.
Fees to pay Initial charge usually 5%-6% included in difference between buying and selling price usually of between 5½% and 7%. Yearly charge ¾%-1½%. Some trusts give regular savers a discount or a loyalty bonus.
Passbook None. Statements of units and distributions sent half-yearly.
Children Under 18 units should be in an adult's name and can be deslgnated with the child's name or initials.
Risk By buying regularly you even out fluctuations in the market price eg you buy when prices are low as well as high. You still need to choose the right time to sell. Otherwise the same as OEIC Invested in Shares.
How to invest Phone the managers, ask for their literature. Choose a trust. Avoid trusts with high charges. Most trusts are available in a savings scheme but some may only allow this through an ISA.
Where from Most managers. See OEIC Index Tracker or OEIC Ethical Fund to help decide which trust to invest in.
Investment Trusts
How Best to Invest in Stocks and Shares
Last updated 7
November 2011