Mutual or Not?

stueee

Good Morning, Over the last few years I have been a regular contributor to Mutual Saving schemes, particularly the PMAS scheme. Every April for the last six years I have opened a new 10 year scheme, saving £20 a month. At present the PMAS scheme gives a minimum guaranteed return of £2412. If investments grow at 4% my return is £2740, 6% -£3040 and 8% - £3360.
I like the idea of saving small amounts and forgetting about it for ten years then receiving a lump sum every year.
Is such a scheme the best option, if not what should I look for.

EdInvestor

These with-profits endowments are expensive and out of date.

You would be much better to save in an ISA using unit trusts via a discount broker which rebates charges.

stueee

Thanks Edinvestor, but i am a total novice. I have no idea what this means! I already have ISA's but how would I benefit?

dunstonh

It means the regular contribution plan you have been using is osbolete. High charges, poor quality investment fund and should have been killed off years ago. You tend to find these are made only available nowadays on mailshots or advertising where no advice is given.

Modern alternatives would be a stocks and shares ISA. However, you are looking at a minimum premium of £50 with most providers although there are some that will go to £20.

ReportInvestor

The government, in spite of its protestations to the contrary, is quite happy to kill off these smaller mutal institutions as it means less work for the FSA which has to be funded from taxes to monitor the financial services industry.

And after Equitable, the government also wants no nasty surprises from mutuals which, by their very nature, lack the effective scrutiny that shareholders provide.

As a result, in spite of the lobbying of these small mutuals to a Labour government that publicly endorses them, the government will not increase the limits to their tax free plans which might start to decrease the crippling charges to which dh refers.

So I don't see any improvement or any incentive to invest in such high charge, inflexible vehicles when there are so many other exciting tax free products with better management, lower costs and higher investment limits.

Their only future business will come from either hopeful carpetbaggers or ignorant investors. [And the carpetbaggers have no indication of likely windfalls as these small mutuals have tended not to merge or demutualise to date. So that approach is pot luck.]

Having said that the Police Mutual is way ahead of its competitors in terms of financial strength and so its with profits fund is not quite such a bad investment compared to most other mutuals.

stueee

Thanks guys, i'll start looking into stocks and shares ISA'a.
One question - As I mentioned I like the option of taking out a new fund every year and then forgetting about it for ten years. At present i would potentially have 10 funds running at one time, would I be able to do this with ISAs, how many could I have running at any one time?

dunstonh

ISAs are not fixed term contracts. If you pay £20pm in, then its open ended. It will not mature. If in year two, you increase that to £40, then if you pick the same fund, then there will be no distinction between the first £20 and the next £20. You would have to pick a different investment fund to get that distinction (which is actually a good thing as picking multiple funds allows you to diversify and not have all your eggs in one basket).

EdInvestor

Of course you can open a new ISA every year at a different company, or add a top-up to an umbrella ISA account but invest it in a different fund.

But the funds won't "mature" in the same way.