Buying An Equity ISA

Before you get started...

By asking yourself the following simple questions, the process of choosing funds for your ISA becomes straightforward:

• Can I afford to take a longer-term view towards investing? I.e. You won’t need to take money out of your ISA to buy everyday items.
• What level of risk am I willing to take? People who can afford to lose some of their money and have the longest view on investing are generally willing to invest in riskier funds.
• What am I looking for from my ISA? Some people want their ISA to provide them with additional income, others simply look for the value of their ISA to grow.

Once you have answered these questions, it’s time to think about the funds that are right for you.

What is your goal?

Generally, investors have one of two goals – to generate an income to supplement other payments, such as a pension – or to build a large value of investments for a particular use, i.e. a dream holiday or to send their child/grandchild to University.

• Generating income - can be achieved by investing in income funds (denoted by the term ‘Inc’). The fund manager of these funds will usually invest in assets that provide interest or dividends. This is then passed on to you as an income payment from the fund. Alternatively, you can have this income paid back into you investment to buy more of that fund.
• Generating growth - can be achieved by investing in growth funds (also known as accumulation funds and denoted by the term ‘Acc’). The fund manager of these funds will usually invest in assets that are expected to increase in value, i.e. via an increase in a company’s share price or an increase in the price of commodities.
  

Once you have an idea of the sort of fund that will help you achieve your goals, you can start to research suitable funds. On this site you can browse over 1,000 funds, view our list of Hero Funds, or take a look at our Six of the Best Portfolio.

Investing is not just for the super wealthy. In fact, anyone who is over 18 and a UK citizen can invest into an equity ISA, and there are three ways you do it.

Investing a lump sum

Quite often people invest a lump sum of money into their ISA. This may be because they have the money available and want to take full advantage of any potential growth, or because the end of the tax year is looming.

The minimum amount you can invest as a lump sum varies between funds, but it is usually £250. You can also invest your entire £10,680 ISA allowance as a lump sum, and thanks to fund platforms, you don’t have to invest all of it in one fund.

Investing monthly

If you don’t have a lump sum of money to invest, or simply don’t want to invest a large amount in one go, you can make small, monthly, contributions into your ISA.

You can contribute into your ISA from as little as £20 per month. It is a great way to build up a large sum of money over a long-period of time. It also helps smooth out the ups, and downs, of stock market investing because of a term called 'Pound-Cost Averaging', which basically means when markets are lower, your £20 contribution will buy a greater amount of units in a fund, and when markets are higher, you buy less.

Setting up monthly payments into an ISA is easy, please call 0800 294 7221 to find out more.

Phasing

Phasing your investment is a great way of investing a lump sum, without putting all of your money into the markets at once.

How phasing works

If you want to invest £6,000 for example, the fund provider will divide this into six equal amounts and invest the first instalment (£1,000) immediately. The rest is held in a cash account and invested in five equal amounts over a five month period.

This option works on the same principle as monthly investing, but in a much shorter time-frame.

If you would like to invest by Phasing, please call 0800 294 7221.

Fund charges explained

The majority of funds have two ways of charging for the service they are offering to you:

• Initial charge - is the cost of the making the investment in the first instance. The initial charge includes commission the fund provider would pay to a financial adviser, plus an additional amount to cover their administration costs. At TQ Invest, we don’t give advice so there’s no commission for you to pay. We also use our buying power to negotiate significant discounts on the administration charge, often removing them completely. On a fund with an initial charge of 5.5%, TQ Invest could save you over £560.
• Annual Management Charge (AMC) - is the cost of running the fund on an annual basis and is usually in the region of 1% to 1.5%. It includes the remuneration of the manager and his team, plus a proportion that is given to the company that arranged your investments to pay for the service they provide to you.

Working out the total charge

Some funds make additional charges to those mentioned above, such as a performance fee. The type and size of the charge differs between funds, so they can be hard to compare. A great way to compare a fund's overall charges is to look at its Total Expense Ratio (TER), which calculates every charge as a percentage. The TER can be found on the fund’s factsheet.

Switching charge

The fund switching charge is the cost of replacing the fund you are in with an alternative and is usually in the region of 0.25%, although in many instances there is no charge. The charge covers the administration cost incurred as a result of selling one fund and buying another.

When investing in an equity ISA, we suggest using a fund platform (also referred to as a fund supermarket). At TQ Invest we offer a choice of investing via Cofunds or FundsNetwork. You can find out more about fund platforms here.

The decision over which platform to choose is a relatively simple one, and is largely down to your own preference. If you already have investments on the Cofunds or FundsNetwork platform then it makes sense to place any new investments you make in the same place. If you are new to investing, or none of your existing investments are currently on platform, then here are some key facts about both Cofunds and FundsNetwork to help inform your decision.

• Established in 2001
• UK's largest independent investment platform
• Cofunds holds a 26% share of the UK platform market
• Access to over 1,500 funds from more than 90 fund managers
• Assets under administration in excess of £30bn

• Over 1,100 funds from over 65 fund companies
• Choice of tax efficient wrappers - ISAs, SIPPs
• Assets under administration in excess of £15bn