Money Matters Nov 11

Tracker fund

I am considering investment in to a tracker fund on the basis they seem low cost and require no ongoing monitoring from me and the stock market seems to be at a low level.  What do you think?

Answer:

Tracker Funds have lower fees than actively Managed Funds and require less monitoring but it is still sensible to review them occasionally.  UK Tracker Funds will track the FTSE 100, FTSE All Share or FTSE 250 Indices and depends on the fund you choose.  The Indices exclude dividend income which the fund will benefit from.  This will partially be counteracted by fund charges although the dividend income means a Tracker Fund should perform slightly better than the Index.  There are of course other options to consider and one could be a Structured Product provided by Investec.  It is called the FTSE 100 Accelerated Growth Plan 30 and should be regarded as high risk; you need to be sure it is appropriate for your risk profile.  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.  If the FTSE is lower after 5 years the capital returned 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) and you could lose some or all of your money if Investec failed.  This type of investment should normally form a small part of your overall Portfolio.   A Tracker Fund will usually be covered by the FSCS.  You 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 may be less than you invested.  Charges are allowed for in the structure of the product and any return paid to you unless 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.  Please be aware the value of investments can go down and you may not get back the original investment.

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

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