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Bold investors can expect a rough ride; your MONEY.


FEW want to buy shares when markets fall - which could be the strongest argument for a tax-free shares ISA (Individual Savings Account) investment before April 5 for the 2007/8 tax year.

Bold investors choosing a UK fund for theirMini Equity ISA (maximum pounds 4,000), or a Maxi (pounds 7,000) can expect rough weather for months. But this is an investment for five years, or at least three - and shares, long term, usually outperform cash in the bank or building society.

Various providers, like Norwich Union's 'green' Ethical Fund, offer ISAs for pounds 50 per month, while discount broker Hargreaves Lansdown takes deposits via debit card.

"At pounds 4,000 or pounds 5,000, this isn't a life or death decision," says Paul Penny at discount broker Financial Discounts Direct. "It's an add-on to other savings."

Based on shares, equity ISAs, go down as well as up. Tony Ahearne at monitors 2,000 or so managed funds and says last year confirms "the survival of the fittest" theory.

"If you happen to be in the Rathbone Special Situations Fund, very popular with Joe Average investor," he says, "you are looking at losses of 25% over the last year. The best performer, Merrill Lynch UK Dynamic, held out pretty well, down only 0.56% in 12 months."

The ISA tax wrapper means capital gains are tax free, while tax on dividends is just 10%. Find a fund in the right sector - perhaps Latin America, China, India or Russia, rather than Britain this time - and capital gains over five years can be considerable.

The other attraction of ISAs is that an original investment can be sold, and reinvested in another fund - while remaining all the time within the tax shelter.

Wherever possible, though, ISA investors should avoid the initial commission, sometimes 5% and more, charged by some fund managers on direct investments. With a discount broker, most of the initial fee is refunded.

On the well-regarded Artemis High Income Fund, for example, the initial commission is 5.25%. Financial Discounts Direct discounts 5% of that, so investors pay just 0.25%.

Discount brokers can give guidance and fund factsheets, but not advice as defined by the Financial Services Act. The Financial Discounts Direct brochure is one of the easiest to follow, because it picks just 13 funds and explains what each hopes to do.

Discount brokers can also take your money this side of the April 5 deadline, and put it on deposit for up to six months while the investor finds a fund. Hargreaves Lansdown (HL) has its own investment platform, Vantage, paying a tiered rate of interest before the cash moves into shares.

According to IFA Promotion, representing independent financial advisers, savers paid pounds 133mn tax in the last year on profits from share dealing, which they could have avoided with an ISA tax shelter.
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Publication:Daily Post (Liverpool, England)
Date:Mar 10, 2008
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