index-linked gilts - thinking right?

12tonelizzie

index-linked gilts - thinking right?

DavidHayton

Hi Lizzie,

An index linked Gilt will pay a regular income (typically 0-2%). If you hold it to maturity your capital will be returned index linked (i.e., it protects your capital against inflation). However, you only get the guarantee if you buy a new issue and hold the gilt to maturity. If you buy or sell between issue and maturity you will find that the capital value is also affected by investor sentiment.

Index gilts funds will trade gilts, and they will not hold them to maturity (otherwise they would be prohibited within an ISA), so you cannot expect them to guarantee your capital.

You might want to consider National Savings Index Linked Certificates. These are simpler beasts that do as they say (and are tax free even outside an ISA). Unfortunately the government isn't selling them at the moment, but this may change in the coming months ...
http://www.nsandi.com/savings-index-linked-savings-certificates

Best wishes
David

DavidHayton

12tonelizzie wrote: »

Thanks as ever.

You're welcome! If you are thinking of buying gilts as a private investor, this page seems a good place to start, but I have never done it myself ...

http://www.dmo.gov.uk/index.aspx?page=Gilts/Buysell

David

bigsy

This posting from the Monevator site, although not specific to index-linked gilts, compares buying gilts direct with buying in a fund: http://monevator.com/2010/12/16/buy-gilts-directl-or-invest-in-a-gilt-fund/

Also, two other low-cost index-linked possibilities for you to compare with the L&G are the iShares Barclays Capital £ Index-Linked Gilts ETF (INXG) and Vanguard U.K. Inflation-Linked Gilt Index (VVUILG).

Rollinghome

12tonelizzie wrote: »

But Hale (writing 2009) says that there's a maximum holding of NS&I certificates of 15k.

Just to clarify, the limit was £15k per issue. Normally there are two issues available, one for 3 years and one for 5 years and there were usually new issues about every 12 months or so. So in March last year someone could have invested £15k in the 3 yr 19th issue and another £15k in the 5 yr 46th issue then the same again in April in the new 3 yr 20th and 5 yr 47th issues. They could also have reinvested maturing issues.

We know the next issues will follow the RPI and not the CPI, the interesting bit will be what percentage in addition to RPI will be paid. It was RPI +1% for the last few issues but has ranged between 0.35% and 1.35% for earlier issues.

kidmugsy

The other question is how much per issue we'll be allowed to invest. I'd be surprised if it's as big as £15k this time.

anselld

SelfTrade allow you to trade gilts both inside and outside an ISA