Investment Trusts - ISAs or savings schemes?

edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
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StinkyMonkeyStinkyMonkey Forumite
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edited 30 November -1 at 1:00AM in ISAs & Tax-free Savings
Hello,

A quick question for those with knowledge of investment trusts. Would it make more sense to start an ISA by drip-feeding a certain amount each month (say £50-100) or rather start a savings scheme (with a similar monthly amount)? What would be the pros and cons (incl. costs)?

Not sure if the question makes too much sense as I am trying to find my way around ITs for the first time.

Many thanks for any response.
SM
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Replies

  • dunstonhdunstonh Forumite
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    savings indicates cash deposits whereas investment trusts is more or less looking at shares. Thats your big difference.

    Costs cannot really be compared as investment trusts will be explicit and declared whilst a savings account is implicit and unknown (although most of the banks seem to be operating with a net interest charge of about 1% at the moment).

    cash will obviously have capital security but the rate of return long term may not give any real capital growth compared to investment trusts which do offer that potential.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • StinkyMonkeyStinkyMonkey Forumite
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    I guess I have been unclear for which I apologise. My opening post was referring to either invest in an investment trust within an ISA wrapper or opt for one of the savings schemes some investment trusts offer. To give you a (totally random) example, Baring Asset Management would allow someone to invest into the Baring Emerging Europe Trust in the form of an ISA with a minimum monthly investment of £250. At the same time, the exact same trust appears to be offered for a saving scheme with a minimum monthly investment of £50.
    Is this 'in-house' ISA exactly the same as the saving scheme only with tax relief (OK, in this particular example the minimum amounts seem to differ somewhat)? I wonder whether I should choose the ISA over the saving scheme or vice versa.

    Many thanks.
  • Mr_MumbleMr_Mumble Forumite
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    StinkyMonkey,

    Yes, the only difference between an investment company's saving scheme and their ISA scheme will be the ISA wrapper protection offered by the latter. There are extra costs involved in providing an ISA hence the need for a higher minimum savings limit in the Barings example. Most investment companies charge an annual fee instead of a higher minimum payment.

    In or out of the ISA? This depends on your current and future tax position, your expectation of future earnings and anticipated capital accumulation. Rule of thumb: if you're a higher rate taxpayer then an ISA is certainly worthwhile given the income tax benefits* but basic rate taxpayers often face a marginal choice. The fees in an ISA may outweigh the advantage of not having to pay capital gains or income tax for nil and basic rate taxpayers. The longer you intend to invest the more likely having the money in an ISA wrapper, from the start, will be useful given the increased possibility of having a large capital gain and/or becoming a higher rate taxpayer.

    *In the specific example of Baring Emerging Europe the dividend is only 0.1% so even for higher tax rate payers the income advantage here is minimal! However, there are likely to be capital gains advantages over the long-term and if switched to an income heavy investment a higher rate taxpayer would regret not having the money in an ISA previously.

    Dunstonh,

    Most investment trust providers use the terminology "savings scheme" for their in-house investment options.
    "The state is the great fiction by which everybody seeks to live at the expense of everybody else." -- Frederic Bastiat, 1848.
  • StinkyMonkeyStinkyMonkey Forumite
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    Many thanks for this response. I believe I will be going into it with a long-term view, hence ISA perhaps is best (am currently base-rate taxpayer but close to becoming a higher-rate one). A quick question which I would like to ask at this moment is this: I am not sure how ISAs work (I do have a cash one already). Assuming I open an ISA with Baring this year (say, with £250/month), would I be able to have another S&S ISA with another provider? For instance, would I be able to open an ISA with a fund supermarket and invest in OEICs/UTs this year?

    Also, would I be able to start two ISAs with two different investment trusts within the same financial year? I think not. In a few words, I am a bit concerned as to whether opening an ISA with an investment trust for a some monthly amount would effectively prevent me contributing to another stocks and shares ISA with a second trust or a fund supermarket. I hope this makes sense!
  • Mr_MumbleMr_Mumble Forumite
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    You can not subscribe (contribute funds) to two or more stocks & shares ISAs in a single tax year. You can have separate S&S ISAs but only if they've been funded in different tax years.

    A fund supermarket is preferable to an investment trust savings scheme as an ISA wrapper. Most fund supermarkets have no explicit ISA charges and the range of investment choice is far greater than in IT saving schemes.

    If it's a straight choice between having either an IT or OEIC in an ISA wrapper then the OEIC wins because of the benefits of a fund supermarket. Of course it may not be such an easy decision if the IT provides a greater dividend yield or you wish to invest more in the IT than the OEIC this tax year.
    "The state is the great fiction by which everybody seeks to live at the expense of everybody else." -- Frederic Bastiat, 1848.
  • turbobobturbobob Forumite
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    Assuming I open an ISA with Baring this year (say, with £250/month), would I be able to have another S&S ISA with another provider? For instance, would I be able to open an ISA with a fund supermarket and invest in OEICs/UTs this year?

    No, you can only have one stocks and shares ISA per tax year.
    Also, would I be able to start two ISAs with two different investment trusts within the same financial year? I think not. In a few words, I am a bit concerned as to whether opening an ISA with an investment trust for a some monthly amount would effectively prevent me contributing to another stocks and shares ISA with a second trust of a fund supermarket. I hope this makes sense!
    Ditto. However, I think it may be possible to use a mix and match approach by starting a self select ISA e.g. through Selftrade. If I understand correctly, their self select ISA can be used to hold investment trusts with any number of different providers (an investment trust being a quoted company is traded like any individual share). It can also individual shares, ETF's or funds etc at the same time.

    One thing with this option is that I'm not sure if its geared up for regular savings. Each time you buy shares it looks like you would have to pay a dealing fee of £12.50.
  • cheerfulcatcheerfulcat Forumite
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    Agree with turbobob. A self select ISA will allow you to hold ITs, UTs and OEICs. Selftrade even offers discounts on some initial charges.
  • StinkyMonkeyStinkyMonkey Forumite
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    Thank you for your replies. I was not aware of Selftrade. In a reply to a previous post of mine, I was advised to look at Hargreaves Lansdown for a self-select ISA. How would Selftrade and H-L compare?

    I find the Selftrade website a bit cluttered and daunting. There is too much info to digest. For example, their fee structure seems a bit scary. It says for their ISA service:


    - £12.50 - our flat fee for online and phone trades
    Applies across all of our different accounts.

    - No dealing fee on Fund purchases
    Plus many Funds have specially negotiated initial charges and lower management fees to save you even more.

    - Flat rate account fee
    Just £25 p.a. including VAT

    Does this mean than whenever I pay, say, £50 to buy shares of an IT each month, £12.50 will be pocketed by Selftrade?
  • turbobobturbobob Forumite
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    You'd pay £25 p.a. for the ISA wrapper.

    As I added in with a sneaky edit, I had doubts as to whether it is going to be suitable for regular savings with investment trusts.

    However a further search through the site has found this, so its a rather more affordable £1.50 per trade http://www.selftrade.co.uk/services/other/regular-investments.php

    It is my understand that regular savings direct through the IT providers that offer them are usually done without a charge though. I was looking at JP Morgans Shareplan the other day and didn't notice any charges for regular savings by DD. EDIT scratch that they charge 1% for sales and purchases.
  • StinkyMonkeyStinkyMonkey Forumite
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    Sneaky, indeed :)
    Well, that makes it more affordable (unless you need to sell). On the other hand, should I assume that the minimum monthly amount that IT companies specify prevails over the minimum specified by Selftrade (£50/month) or not? For instance, if I wanted to have an ISA with 1 IT and 1 UT with minimum monthly investment of, say, £50 and £100 respectively, what would be the minimum monthly payment through Selftrade? £150 or Selftrade's £50?

    Apologies for the continuous stream of questions...

    EDIT: I am trying to find whether H-L has similarly reduced charges for regular saving plans within an ISA but have not managed to do so.. Any hints?
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