Unit trusts and OEICs

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24. Selecting a fund: lump sum vs regular savings

Imagine that you have £10,000 of spare capital which you want to invest in the stock market. Your choice is:

• to invest it as a lump sum in one go
• to drip feed it into the market over time.

The argument for investing everything a lump sum is that, historically, the stock market rises over time and, as long as you intend to stay in the market for the long term, you might as well get in as soon as possible. The exact price you pay won't matter over the long term because the general trend should be upwards.

The argument against is that if you are unlucky enough to invest on a day when the stock market is at an all time high, and in the following 3 weeks it drops 15%, you will suffer a very painful loss. Better, this argument goes, to drip-feed your money in over time.

The point of drip-feeding over time is that the price you pay for shares will average out. In some months you will be buying in at a relatively high price; in other months when the market has dropped you will be buying at at a lower price. This technique is known as pound cost averaging.

You can either drip-feed money in at your discretion or you can, if you prefer, contribute to a unit trust or OEIC savings plan where you decide in advance how much each month you are going to invest.

1. What is a unit trust? 2. What is a unit? 3. The trust deed and scheme particulars 4. The people behind a unit trust 5. Charging structure of unit trusts 6. Pricing of units - FSA rules on maximum offer price 7. Pricing of units - FSA rules on minimum bid price 8. Pricing of units - in practice 9. Pricing of units - historic and forward pricing 10. OEICs - Open Ended Investment Companies 11. Shares in OEICs 12. OEICs - pricing 13. OEICs - charges 14. Taxation of unit trusts and OEICs - Introduction 15. Tax treatment of dividends from equity funds 16. Tax treatment of coupons from non-equity funds 17. Capital Gains Tax 18. Tax shelters 19. Investment powers of fund managers: 'eligible investments' 20. Diversification 21. Fund classification: risk gradings 22. Selecting a fund: Defining your objectives 23. Selecting a fund: Active vs passive 24. Selecting a fund: lump sum vs regular savings 25. Selecting a fund: Past performance 26. Where to buy unit trusts and OEICs 27. Buy with or without advice? 28. The mechanics of buying 29. The mechanics of selling 30. Share exchanges and fund switches 31. Investor protection 32. Conclusion

• Exchange-Traded Funds