Money Matters May 10

Who gets the money?  I have some money to invest and was considering a tracker fund on the basis they seem low cost and require no ongoing monitoring from me.  What do you think?

Answer:

Tracker Funds do have lower fees than actively Managed Funds and require less monitoring but it is still sensible to review the investment occasionally.  UK Tracker Funds will generally track the FTSE 100, FTSE All Share or FTSE 250 Indices which will be determined by the fund you chose.  These Indices exclude dividend income but your Tracker Fund will benefit from the dividends.  This will partially be counteracted by the fund charges, overall though the dividend income means a Tracker Fund should perform slightly better than the Index.  Like the Index, the value of your investment can go up and down. As an alternative, Investec have a Structured Product called the FTSE 100 Accelerated Growth Plan 17.  It has a fixed term of 5 years.  At maturity it aims to return your capital plus 2 X any growth in the FTSE 100 Index (averaged in the last 6 months) with no upper limit which is higher than you could expect from a Tracker Fund.  If the FTSE is lower after 5 years the capital returned to you will be reduced on a 1 for 1 basis.  If the FTSE 100 Index is 15% lower the capital returned will be 15% lower.  This is broadly similar to what you would expect from a Tracker Fund but the Tracker Fund could remain invested to benefit from any recovery whereas the Investec plan would mature regardless.  In this instance though, it could be reinvested to also benefit from any recovery.  This is a Structured Capital at Risk Product (SCARP) and this type of investment is NOT covered by the Financial Services Compensation Scheme (FSCS) which means that you could lose some or all of your money if Investec failed.  As a result, this type of investment should normally form a small part of your overall Portfolio.   A Tracker Fund will usually will be covered by the FSCS.  You do have access to the investment during the 5 years but the value returned will not necessarily reflect the performance of the FTSE 100 Index at that point and you could get back less than you invested.  Charges are allowed for in the structure of the product and the returns eventually paid to you, and unless held in an ISA, will be subject to Capital Gains Tax.  The minimum investment is £1,500.  There are other Structured Products similar to this available, before considering such an investment it is important that you get advice from an Independent Financial Adviser.

Any reader interested in discussing this topic further can telephone Peter Sharratt on 01344 875000 or email peter.sharratt@kirkrice.co.uk

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.