Investment clubs

Q&As

1. How many people can belong to a club?

   There is no minimum, although between 5 and 14 is generally thought of as the ideal number. You cannot have more than 20 members.

2. Is there an age limit?

   You have to be over 18 to join a club.

3. Can a club run an ISA scheme for its members?

   No.

4. Does a club have to register with ProShare Investment Clubs?

   No it doesn't. But if you buy the ProShare Investment Clubs manual, you can get one year's free membership for your club.

5. Do investment clubs have to be based in Britain?

   No. You can form a club overseas and invest in the UK stock market. You do need to check on the taxation laws of the country in which you are resident and make sure there are no complications there. Also check that your broker can accept applications from outside of the UK.

6. How do you deal with tax?

   The best thing to do is to get in touch with your local tax office and explain what you are doing. They will help you to use a relatively simple version of paying the appropriate tax they have devised especially for investment clubs.

7. Does it take the treasurer a lot of time to run the club?

   A little often is the answer. If you keep up with the paperwork as it arises and do, say an hour a week it will not become a burden. For a large club of twenty people you should expect it to take about four hours a month to send out the statements, and the same time once a year to do the year end.

8. Do you have to be an accountant to do the audit?

   No, but it helps. The ideal is to have an accountant as a member of the club doing the audit for no fee. Otherwise any member can do it if they follow the advice of the audit work document in the workshop. It is a great pity to pay someone to do it, as this goes against the whole ethos of the club to minimise charges.

9. Do you take expenses from the club's finances?

   The treasurer may want to charge for the stamps they use and all the other expenses caused by sending out the statements and running the club. It is much better to do this as a one off charge made to the members at, say, the Annual General Meeting. £10 a year per member should do it. That way you do not have to account for it in the books and it keeps the charges minimal.

10. Do you have to use a nominee to hold the shares of the club?

    No, you can do it by a trust deed. Unless the club has a member who is a lawyer with the appropriate knowledge, you will almost certainly need advice to set this up, and advice costs money. The one disadvantage of using a nominee, apart from cost, is that the club has to make its own arrangements to get the annual report of the companies it invests in. This is easy enough - use the Financial Times system or ring up the company and ask. Incidentally some nominees waive the cost of holding shares once the fund makes a certain number of transactions per year.

11. Can the club buy shares in overseas companies directly?

    A limited number of stockbrokers offer this service. Make sure you understand the currency risk, particularly with regard to dividends, and remember you can gain exposure to these by, and you may want to consider, unit or investment trusts before making a decision to do this.

12. Can a member stop paying for a while?

    It depends on what the rules say. But most clubs insist that if you remain a member you must pay the monthly subscription.

13. Can a member make a one off payment?

    Once again it depends on the rules, but many clubs allow for this with an annual limit.

14. What if a member wants to leave at an awkward time?

    They have this possibility as a right under the constitution. Follow the rules for giving notice, as agreed by the club, and the hedging advice in the workshop and the interests of the members remaining will be protected.