Cheapest way to buy funds discussion

jamesd

dunstonh, HL rebates on initial charges buy more units. Trail rebates go into their "loyalty bonus" account whcih tracks each individual payment. This takes the rebate out of the tax wrapper. It can be reinvested once it becomes significant, counting as newly subscribed money when that is done.

dunstonh

jamesd wrote: »

dunstonh, HL rebates on initial charges buy more units. Trail rebates go into their "loyalty bonus" account whcih tracks each individual payment. This takes the rebate out of the tax wrapper. It can be reinvested once it becomes significant, counting as newly subscribed money when that is done.

That explains a lot as a number of the other platforms say that they cannot rebate trail on ISAs as it would be classed as a contribution. Strangely enough the same excuse HL give for not rebating trail on pensions yet other fund supermarkets do. Although the fund supermarkets on pensions tend to use an insured hybrid SIPP which allows them to do it.

Who?_What?_Where?

Ok, I'm a complete novice when it comes to investing, so I have some basic questions to ask. Sorry if any are foolish.

First of all, have I got the right idea of what a S&S ISA should be used for? At the mo I have a cash ISA. I plan to invest about £2-3k per year for about 5 years, maybe for a house deposit. What I want to do is first of all transfer the contents of the cash ISA to a S&S ISA, and then be able to add money as I please to it in dribs and drabs. I also (as someone with no investment experience), would want a professional deciding where my money went over the course of my investment. So is what I want a “managed unit trust in a maxi-ISA wrapper”?

Second, just to check I have got the process for actually buying these things right. I would research what fund I'd want ISA-wrapped by using people like TQ Online, BestInvest and HL. Upon deciding what fund I wanted, I'd use a discount broker like Chartwell or HL to buy them to minimise money spent on charges. Right?

Thank you for any help!

jamesd

You have the right idea since a stocks and shares ISA is likely to perform better for you over that timeframe.

You cannot currently do a transfer within the ISA wrapper from a cash ISA to a stocks and shares ISA. It is expected that the Budget this year will announce that you can from April 2008.

For this year, if your total cash ISA amount is 4,000 or less and you do not want to make other S&S ISA contributions that take you above 4,000 this tax year, you could withdraw the cash ISA money and pay it into a stocks and shares ISA. This uses as much of your S&S allowance as the amount you're transferring.

It is also expected that the Budget will remove the mini/maxi distinction and the ISA limit will become simply 7200 of which 3600 can be cash, letting you do more flexible mixing than the current 3000/4000 fixed limits, like 6000 S&S ISA and 1200 cash ISA, which isn't possible at present.

Yes, you want a selection of unit trusts or OEICs inside a mini or maxi ISA wrapper (this year) or simply in an ISA wrapper from April 2008 when the mini and maxi distinction goes away.

You're right about how to buy them.

I suggest that you read Ok then - How do I choose a S&S ISA to get an idea of what a sector allocation is. That's how you'd pick a range of funds to reduce your risk while increasing your likely returns. Using just one fund is a bad idea, however good it is.

If you want some funds to look at you might consider BlackRock UK Absolute Alpha if you're worried about the UK markets and will take lower growth for extra protection against value drops and/or Invesco Perpetual Income, Accumulation units for a long term excellent performer (better than the Blackrock Absolute fund but more likely to drop if the market falls. Compare the charts of the two for the last year using the H-L charting tool to see how their performance differs. For non-UK cover you could consider Artemis Global Growth.

Ian_W

jamesd,
I'm very interested in your comments about the BlackRock fund, indeed I have some money invested in it - what I can't figure out is how to quantify the risk of the fund?
Is it a "safe" fund that flies in the face of the usual risk v reward that is usually associated with investing [other than the fact that returns may be lower in a bull market], unless the manager c0cks-up big style? Or does it have risks that are not immediately apparent, unlike a traditional "long only" fund?
I understand the principles used, if not all the detail, and I know the fund has been running with double digit annual returns for well over 2 yrs on low volatility - even when major drops in the market happened like in August.
It is the uncertainty about the risk of the fund that has kept me from using it as a core holding, so any thoughts would be appreciated.

jamesd

Ian W, first I'd better briefly describe how it works, for anyone who doesn't know. It's like the CEO of a company signing an employment contract with a bonus that they get only if the share price rises. Then the CEO places bets that pay money if the price goes down. The drop bets cost money (so the TER of the fund is higher) but whether the company share price goes up or down they still get some extra money, from either the bonus or the bet. Not as much if it goes up because of the cost of the bets but that beats losing it all if the price goes down.

So, the fund doesn't break the rules: you pay for reduced volatility with higher costs and lower returns.

Futures contracts are for limited terms and I don't know how far into the future their contracts run but it seems likely that a long duration market drop will last too long for them to get full protection, but the drop would still be more smooth than a regular fund.

So, I think it's a good core choice for a time of market instability. Which is exactly what the UK has today. I still wouldn't put all the money in it but would also use an equity income fund like Invesco Perpetual Income (or another that dunstonh mentioned a while back as being of lower volatility). This is what I've suggested to my mother for the UK part of her holdings.

Only 16% of my own total non-cash investment fund value is currently in the UK. Subject to change at any time, of course, but it's unlikely ever to go above 40%.

rpip

I'm new so could be a bit slow to respond.

Intelligent Money have stopped 100% rebate of initial and annual commision. They have changed to 70/30% split. If you dont accept your £35 back the will not allow you to take up the new terms on renewal - a bit 'sharp' I would say.

Does anyone know of a current scheme which gives 100% for a flat rate membership fee?

bcr

I have an ISA with two CIS funds in it, which are not the greatest performers. I am looking to invest in better performing funds but I am unsure of the most cost effective way to do it. Can anyone help with some advice. CIS funds were bought direct.

munk

bcr wrote: »

I have an ISA with two CIS funds in it, which are not the greatest performers. I am looking to invest in better performing funds but I am unsure of the most cost effective way to do it. Can anyone help with some advice. CIS funds were bought direct.

[STRIKE]Best thing is to write to CIS and ask them to sell all your holdings and pay the money into your bank account. You can then go on to look for better alternatives perhaps via Hargreaves Lansdown if you're going DIY or another discount broker or ask an IFA for advice if you don't want to go the DIY route.[/STRIKE]*

I put up a post about the pros/cons of going DIY vs investing direct (as you did with CIS) vs going with an IFA, the post is here:

http://forums.moneysavingexpert.com/showthread.html?p=7928011#post7928011

I would say be careful investing right now though, perhaps best to stay in cash/good high interest savings account or at least drip feed into any funds you choose slowly over the next year or so. Just my opinion of course!

*EDIT: oops just noticed you said it's an ISA you're in - in that case don't withdraw from the ISA wrapper! My bad. Best bet in that case then is to ask the discount broker you decide to go with (HL are good) to transfer over your ISA(s). HL do have the option of allowing you to stay in cash for a short while within an ISA and although their interest rates for cash aren't the best around, at least they do pay some interest and you have some time to decide what fund(s) to put the money into without the value of the ISA falling.

jamesd

bcr, first step is to select a fund supermarket that offers lots of fund choices. Hargreaves Lansdown is a good choice if you're interested in unit trusts, OEICs and SICAVs but not in much direct share buying.

When you've selected a manager you can ask for the funds to be transferred as cash (sold before transfer) or "in specie", a transfer of the funds you already hold rather than selling them. Since you're interested in selling them anyway and there's often a cost for an in specie transfer I suggest that you choose the cash option. The manager you're moving to will handle the rest. Give the new manager a call if you have questions about which form you need or how to fill it in.