New ISA allowance: The search for income
12/04/2011
by Paul Dicken
If the end of the tax year on 5 April saw banks and investment houses competing to win last minute ISA customers, the beginning of the new tax year is an opportunity for you to make the best use of the new higher ISA allowance.
The options for income as the tax year begins include using the stocks and shares ISA allowance to invest in a bond fund, equity fund or structured investment.
Bond funds
Corporate bond funds hold a range of different bonds issued by companies and governments, aiming to return a level of income which will vary and sometimes capital growth. The M&G Corporate Bond Fund current distribution yield (estimated yield for the next 12 months) is 4.16 per cent, with investments made internationally in government and corporate bonds. The Fidelity Moneybuilder Income Fund invests globally, primarily in corporate bonds, and currently has a 4.18 per cent distribution yield.
Bond funds with greater flexibility to invest in different types of company bonds, such as higher yielding bonds from companies with lower credit ratings, are strategic bond funds often looking to maximise income and growth, such as the Aegon Strategic Bond Fund and M&G Optimal Income Fund.
The Aegon Strategic Bond fund has a current distribution yield of 4.15 per cent a year, and invests in bonds ranging from AAA government bonds through to high yield and emerging market corporate bonds.
The M&G Optimal Income Fund currently has a 4.00 per cent distribution yield and offers ‘exposure to optimal income streams in investment markets’. Both funds aim to deliver a total return, combining growth and income.
Equity funds
While there is a very competitive UK equity income sector, consisting of the Invesco Perpetual Income Fund, Artemis Income Fund and BlackRock UK Income Fund, other equity income funds invest globally in equities to return a level of income.
This includes the Newton Global Higher Income Fund and Schroder Global Equity Income Fund.
Both funds invest in international equities, primarily developed countries in Europe, and the UK and USA, with some exposure to emerging markets, aiming to provide a rising level of income and prospects for capital growth.
The Newton Global Higher Income Fund has a historic yield (based on distribution payments over the last 12 months from the end of February 2011) of 4.88 per cent.
The Schroder Global Equity Income Fund has a historic yield of 3.98 per cent.
The yields on bond and equity funds are not guaranteed and may be subject to change.
Structured Investments
Structured Investments aim to deliver defined levels of return over fixed periods, often five years.
For example, the Royal Bank of Scotland UK Fixed Income Plan 1 is a five year structured investment plan which aims to pay an annual income of 6.25 per cent or a monthly rate of 0.50 per cent, with the deadline for 2011/2012 ISA investments on 21 April.
The return of capital is dependent on the performance of the FTSE 100 Index. If the index has not fallen by more than 50 per cent during the term of the plan then all of the capital invested is returned. Capital and the income payments are dependent on the ability of the counterparty, RBS, to repay investors.
View the Select 100 to view more investments funds and find out more information or compare income options in the table below:
No news, feature article or comment should be seen as a personal recommendation to invest. Different types of investment carry different levels of risk and may not be suitable for all investors.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Past performance is not a guide to future performance. Yields are not guaranteed and may be subject to change
Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
© Fair Investment Company Ltd
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