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Personal finance: Save time at the cheque out.

Byline: Trevor Law

You don't always need a shopping trolley or shopping basket to make use of a supermarket.

In the financial world, investment fund supermarkets have evolved over the last five years in the UK to offer a service to investors to simplify the administration of their PEPs, ISAs and unit trust portfolios.

At its simplest, a fund supermarket is a platform enabling you to buy a fund or selection of funds with choice from many different fund providers, avoiding the time-consuming complexities previously associated with varied portfolios.

In the past if you constructed a portfolio of funds from different management companies, you had to deal with each different manager individually, using different application forms, making separate payments, and receiving separate statements and valuations, usually half yearly. The more that you diversify into different funds and different fund managers, the more complicated the whole process becomes and the amount of paperwork generated can be frustrating and unmanageable.

The supermarket has transformed the share investment scene.

You are not on the database of all these investment companies sending you all their mailshots, new fund launches as well as their two valuations a year and at least another half-a-dozen letters. If you have ten individual holdings, you are into at least 50 communications a year. You could be talking about being deluged with 1,000 plus pages of paper a year.

You don't have to make separate applications to companies for shares.

The fund supermarket allows you to register all of your individual holdings on a platform. Investors can still diversify across a broad spread of different fund managers, but can be done with one application form, making one payment and receiving one, consolidated statement. This makes managing your investments far simpler and saves everyone considerable administrative work costs.

A supermarket should mean you do better with your investments. If you can see your investments more simply, it is easier to manage and move that money than if you have got pages and pages of paperwork trying to show how that firm has performed compared to another.

Say fund C over here is not performing very well and you want to move to fund D over there, you would have to write to Fund C, close it, get your money back, open a new account with Fund D and send your money. If you are with a fund supermarket, you can just move your money from one fund to another without going to all this trouble. Investors can move funds around far easier and cheaper.

A good example is the Cofunds fund market which was launched in 2001 with the backing of four of the UK's leading fund managers, Gartmore, Jupiter, M&G and Threadneedle.

Since then, IFDS and Legal & General have become additional shareholders and over pounds 5 billion worth of assets are administered through the platform. Eight hundred funds are available managed by fifty different fund management groups giving investors more than sufficient choice and diversification but administered through one simple avenue.

Cofunds, or any fund supermarket, have a direct link between their systems and those of the fund management groups so that details of all individual holdings can be routed through the platform so that clients receive one consolidated statement half yearly.

You don't have to go back to square one to make use of financial supermarkets. Investors who have already constructed a diversified portfolio of PEPs, ISAs and unit trusts can also make their lives far easier. By re-registering their holdings with a supermarket at no cost, they will be reducing enormously the administrative paperwork and also allowing an analysis of performance to be reviewed more accurately.

A fund supermarket does not normally charge a fee for its service. The charges which apply are usually the initial fee levied by the fund managers and a switch fee between funds, often only 0.25 per cent. Hence, a fund supermarket does not add another layer of charges.

Nothing is a certainty in the unpredictable world of shares but diversification is the key to reducing risk. But beware of going around in circles. You may have several holdings with different companies thinking you have assembled the ultimate foolproof shares portfolio in risk terms. But by expanding your shares portfolio combining different fund managers in a Fund of Funds, you could be reducing rather than widening the diversification element as well as paying higher expense fees.

You may choose to invest your money in not one but three different UK growth funds.

There may be no connection between these funds but this doesn't mean to say you are avoiding overlapping. If all three funds view Slick Computers Inc as a company going places on the global market, your overall portfolio may be unwisely overloaded with Slick Computers shares.

Another factor to remember is that diversification is a safety valve offering reliable returns rather than a route to a fortune. Some of the largest supermarkets that have an impressive track record are Cofunds, Fidelity, Selestia and Skandia. If you use an independent financial adviser to purchase or manage your investments, you may like to suggest to them the use of a fund supermarket to simplify your affairs.

Trevor Law is a director with Montpelier Group (Europe), the privately-owned independent financial advisers based at Barston near Solihull. E mail:
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Nov 26, 2005
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