Pooled investments could be the solution for you.
OEICs
Open Ended Investment Companies (OEICs)
An OEIC works in a very similar way to a unit trust except that an OEIC is legally constituted as a limited company (Plc). OEICs have been operating outside the UK for some time, but only since 1997 has it been possible to operate an OEIC in the UK.
OEICs are not trusts and do not therefore have a trustee. Instead, however, they have a depository which holds the securities and has similar duties to a unit trust trustee.
Most OEICs operate as umbrella funds which means that the OEIC is authorised and then can set up sub-funds without gaining individual authorisation for individual sub-funds. Each sub-fund has different investment aims, e.g. a sub-fund may specialise in the shares of small companies or in a particular country, e.g. the USA. Each sub-fund can also have different charges and minimum and maximum investments. Unit trusts are allowed to do this too, but few do.
Most OEICs only have one unit price and the initial charge is added as an extra. Unit trusts always have two prices, the lower or bid price is what you get when you sell back to the managers; the higher or offer price is what you have to pay when you buy.
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Is an investment trust right for you?
Investment Trusts
Investment Trusts work similarly to Unit Trusts and OEICs in that they provide a means of pooling your money with other investors. They are however different in that they are publicly listed companies whose shares are traded on the London Stock Exchange and also in that they have a finite window of opportunity in which investors can subscribe rather than being open ended. The prices of shares in Investment Trusts will fluctuate according to investment demand and changes in the value of their underlying assets. They are therefore subject to the same types of risk associated with any product that invests money either directly or indirectly in the stock market but the level of risk depends on the trust’s strategy and the classes of assets held.
The Investment Trust Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to increased volatility in the Net Asset Value (NAV), meaning that a relatively small movement, down or up, in the value of a company’s assets will result in a magnified movement, in the same direction, of that NAV.
A particular Investment Trust may invest in companies that are not listed on a stock exchange (unlisted investments). These can also be more volatile in their price fluctuations and harder to sell than listed shares.
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Helping you reach your goals and ambitions for the future.
Unit Trusts
Investing in Unit Trusts
Unit Trusts are a common type of collective investment.
A unit trust is a large fund of monies and/or investments pooled together and controlled by trustees with the aim of gaining capital appreciation, income, or both.
Unit Trusts are made up of 'units'. Each unit will have both a buying price and a selling price. The difference in these prices includes the fund management charges. The number of units held, multiplied by the current price, gives the current value of an investor's holding.
These investments are open ended, which means that units are created every time an investor puts money into the fund, and liquidated when they withdraw money, so that the fund can react to demand and continually grow through prosperous periods.
Investors can then enjoy the benefits of larger investments including discounts, however during periods of poorer performance, the fund may need to sell assets to enable investors to withdraw their monies, so the fund size is reduced.
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Achieve long-term financial wellbeing through smart investments.
Equities
Investing in Equities
Investing in equities means buying stocks and shares in companies listed on the stock exchange. Historically this brings greater rewards than investing in bank accounts and bonds as you have the possibility of gaining not only a dividend - a proportion of the company's after tax profits distributed to shareholders - but also a capital appreciation. If the price of the shares goes up after you buy them then you have made, on paper at least, a capital gain.
But with these increased rewards comes greater risk as the value of shares can go down as well as up, which means you risk losing your investment if the price of the shares falls.
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An introduction to investing offshore.
Offshore Collectives
Investing in Offshore Collective Funds
Offshore investment vehicles include unit trusts, mutual funds or investment companies, and may be open or closed. The offshore company normally pays no tax on its income or gains. However, the income it receives may be subject to withholding tax, which the company will not be able to reclaim. For the policyholder, all gains are fully taxable at the time of encashment.
Risk & Reward
Offshore funds offer greater returns and often greater risks than onshore funds, however many countries restrict investment in such funds by their citizens, and also restrictions are placed on the marketing of offshore funds to their citizens. The UK's regime, whilst permissive, is still not very flexible. The laws and regulations of high-tax countries in respect of offshore funds are directed not just to limiting the behaviour of their citizens but also to preventing 'money-laundering' and other illicit uses of International Offshore Financial Centres (IOFCs).
Financial Conduct Authority Recognised Funds
These are funds which, although managed overseas, are permitted to market themselves directly to UK private investors. Having the 'Financial Conduct Authority Recognised' tag simply means that the UK authorities acknowledge the regulatory regime in the overseas territory is of a standard at least as 'good' as in the UK.
There may however still be higher risk funds which the Financial Conduct Authority doesn't recognise even though they are based in territories with 'good' regulatory regimes.
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Diversify your portfolio with collective investment vehicles.
Collectives
Collective Investments
Collective investments are also known as unit trusts, investment trusts and OEICs. In all cases an individual is able to invest in a basket of shares of different companies, that way spreading his or her equity investment risk.
With a collective investment your money is pooled, along with that of other investors, to create a large capital sum. Professional fund managers then use this capital sum to build up a large actively managed portfolio of investments. This approach enables you, indirectly, to hold a wide range of stocks and shares in a way which would not be practical for an individual investor, whilst minimising the effects on your capital of fluctuations in individual share values.
Collectives can also invest in fixed interest instruments. These include UK government stock, also known as gilt edged stock or "gilts" for short. Corporate bonds are also fixed interest instruments and both represent direct borrowing on the part of the issuer of the bonds. They are referred to as "fixed interest" because their cost of borrowing is fixed, while the price of the bonds themselves may float up or down depending on supply and demand.
Traditionally, fixed interest investments have been regarded as a safe option. However it is important to remember that not only do they fluctuate in price, but also that the investor risks that the issuer may not be able to pay the interest (coupon) on the bonds, or the principal when the bonds mature.
With a collective investment you have access to expert full time investment management, reducing the risk and complexities of direct investment into equities. Your money becomes part of a much larger investment portfolio with much larger individual investments, as well as more individual holdings.
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Grow your finances and build a better future.
Capital Investment Bonds
Capital Investment bonds are designed to give capital growth and/or income over the medium to long term with access to your money by taking regular or one off withdrawals. Most bonds are designed for investment over at least five years. If you cash in your investment before that time, you are likely to be charged an early-surrender penalty.
Bonds are set up through insurance companies without the need for a check on your health status and normally people of any age can hold a bond. Bonds can be opened onshore (within the UK) or offshore (usually in the Isle of Man or the Channel Islands) to take advantage of tax concessions. The decision will depend on your personal tax situation.
There are no maximum limits to invest, but barriers to entry can start higher than other investments, with a £10,000 entry point being not untypical.
Drawing down income from a capital investment bond can be an option, though obviously any income drawn down will deplete the original capital. You may be able, depending on the policy, to make additional payments to the bond at any time, as well as one-off withdrawals. With a capital investment bond an investor could make a profit from any stock market upturn and in some bonds their capital can be protected should stock markets fall but this protection comes at a cost.
Capital investment bonds have management charges and these vary greatly. They are usually levied as an annual fund charge or even as an initial charge and early encashment charge.
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A flexible way to save for a child's future.
Junior ISAs
Individual Savings Accounts for children or Junior ISAs were introduced in November 2011 replacing Child Trust Funds. They are long term, tax-free savings accounts for children who
- are under 18
- live in the UK
- have not invested in a Child Trust Fund account.
If your child lives outside the UK they can only open a Junior ISA if you are a Crown servant (for example, you work in the UK’s armed forces, diplomatic service or overseas civil service) and the child depends on you for care.
A child cannot have a Junior ISA as well as a Child Trust Fund account, however, a Junior ISA can be opened and the trust fund transferred into it.
There are two types of Junior ISA, a cash Junior ISA and a stocks and shares Junior ISA and a child can have one or both types at any one time but the total annual amount which can be paid into either or both combined (if they have both) is £9,000 (2024/2025).
If the child is under 16 the account must be opened by someone with parental responsibility, e.g. a parent or step-parent, who then becomes the 'registered contact' and the only one who can change the account or provider. They should also keep all paperwork and report on any change of circumstances.
Anyone can put money into the account (providing the annual limit is not exceeded) but only the child can take it out and only then when they are 18. If they choose not to take it out or invest it in a different type of account then the Junior ISA will automatically become an adult ISA.
The money in the account can only be withdrawn before the child is 18 under two conditions:-
- The child is terminally ill, in which case the 'registered contact' can take the money out
- The child dies, in which case the money will be paid to the person who inherits the child's estate.
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Tax-efficient savings for a brighter future.
ISAs
Individual Savings Account (ISA)
ISAs represent a tax-efficient container in which to place cash savings and investments in equities, bonds and collectives.
An ISA is available to all UK resident individuals and to Crown servants (for example, those in the UK’s armed forces, diplomatic service or overseas civil service) and their spouses or civil partners who are not resident in the UK.
To open an ISA you must be over the age of 16 for cash ISAs & over the age of 18 for stocks and shares ISAs and you cannot hold an ISA with or on behalf of someone else.
Designed to encourage new saving they are attractive to investors seeking a tax-efficient investment vehicle with the potential for higher returns. There is usually a low level of minimum subscription and no minimum period of investment.
An ISA enables you to accumulate savings in a tax efficient manner as all gains are free from tax, making them particularly attractive to higher rate taxpayers.
An ISA can contain cash deposits, investments in equities, bonds and collectives.
For the 2023/24 tax year, you can choose to pay in one of the following:
- £20,000 to a cash ISA and nothing to a stocks & shares ISA.
- £20,000 to a stocks and shares ISA and nothing to a cash ISA.
- A combination of amounts between a cash and a stocks & shares ISA, up to the overall annual limit of £20,000.
You can only open one cash ISA and one stocks and shares ISA to put new money into each tax year. But you can also open other ISAs to transfer old ISAs into.
For UK equities, you are deemed to pay 10% dividend tax credit in stocks and shares ISAs which cannot be claimed back.
Withdrawals from an ISA can be made at any time with all gains free from tax but it is only possible to hold one ISA per tax year, so if an ISA is closed within the same tax year that it was opened, another one cannot be started until the next tax year.
ISAs can be transferred from one provider to another, as long as the new provider accepts transfers. This is often done with a cash ISA after it has been held for a year as previously attractive interest rates drop dramatically when short-term bonuses and fixed terms come to an end. The transfer is initiated through the new, receiving, provider who will require you to supply details of the original account and will manage the whole transfer process. Transfers should not be done manually by withdrawing the investment, closing the account, and re-investing it in the new account, as this removes the tax-free interest status of your investment.
The current year's allowance is unaffected by anything transferred from previous years so you can transfer previous investment to a new ISA and open a second ISA for new contributions if you wish, as long as you don't contribute to both.
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