Discover how you can dabble in the stock market tax free with a fund ISA.
Fund ISAs reduce the risk associated with investing in stocks and shares by spreading your savings across a range of different investments managed by specialist advisers. You can invest up to £10,200 a year in funds under the protection of the tax free stocks and shares ISA umbrella. (In the 2009 budget the Chancellor announced that the ISA limit would increase from £7,200 to a total allowance of £10,200, £5,100 of which can be saved as cash. This came into effect late in 2009 for those over 50 and in April 2010 for all other savers).
By investing in fund ISAs you get to take advantage of the potential benefits associated with long term investment in the stock market without paying income or capital gains tax on your returns. Consequently it is not necessary to declare the funds you hold in ISA accounts on your tax return.
There are a huge variety of investment fund options available. These range from the higher risk growth funds to lower risk tracker fund investments. Growth fund ISAs are usually managed by financial advisers and aim to increase the basic value of the investment by buying shares of companies predicted to grow rapidly. Because of the associated risk these are very much a long term investment and may be subject to high management fees.
Alternatively tracker funds aim to follow the fluctuations of the stock market as a whole by tracking indices of performance such as the FTSE100. These can be a good option for inclusion in fund ISAs as management fees tend to be minimal. Additionally, although your investment won't grow above the rate of the stock market, it is unlikely to be outperformed either and so attracts less associated risk. It is also possible to use your ISA allowance to invest in a mix of property funds and corporate bonds.
It is important to remember that there is always a degree of risk associated with investing in the stock market. However by choosing a spread of lower risk investments such as bonds, tracker or property funds, although the potential for extreme growth is reduced, the level of risk on your initial investment can be minimised.
The tax free status of fund ISA investments gives even the most novice investor the opportunity to begin to build a strong savings portfolio.
