IT has taken some time, but the manufacturers of regular savings products - the life assurance companies - have finally begun to address the problem of high costs and charges. Commissions, which took up a large chunk of first year premiums have been reduced and the life company's own set up costs and charges are also coming down. Irish Life, Ark Life and most recently, Lifetime, with its new Equity Plus (see story right) - have brought out the first of a new generation of savings plans.
Another welcome development is the arrival of The Global Savings Plan, a regular savings contract brought out by Fidelity Investments the world's largest fund manager through its Irish distributor and master agent the Taylor Investment Group. Ireland is the fifth country after Germany, Austria, France and Switzerland to see the launch of this product, a SICAV investment, regulated under the UCITS Directive. (It is not available in Britain where direct investment unit trusts run by companies like Fidelity are already widely available.)
For as little as £50 a month (the amount can be stopped or started once you meet the minimum subscription of the equivalent of US$2,500), investors can choose between 24 pure equity funds which concentrate on 18 countries or six regions. Direct investment from Ireland with international fund managers like Fidelity has been restricted to lump sum investments only.
Until now, the choice for smaller Irish investors has either been life assurance based managed funds - a market that had virtually collapsed due to the deadly combination of poor investment returns and high costs and deposit products, most notably the An Post instalment savings plan which guaranteed a tax free return, and made no up front charges or commissions.
But sharply falling deposit interest rates have forced many savers - albeit reluctantly - to look around for abetter return. Many are interested in a disciplined form of savings, whether it be for their children's education, to upgrade their home or to put towards retirement. To a certain extent the life companies have responded by dropping charges and creating lower cost products. But what they have been unable to offer - again until recently has been the global expertise and resources of international fund managers. (Interestingly, some life companies are now engaging international managers for some of their funds.)
Fidelity's Global Savings Plan aims for higher fund growth by restricting itself to equities - company shares - rather than the managed funds preferred by the Irish life assurers. (Managed funds are a mixed bag of equities, government gilts, cash and property, weighted both for growth and for stability.) The Fidelity product, being all equity, is certainly higher risk and savers need to assess their own risk profile carefully before considering such an investment. Unlike the plethora of guaranteed tracker bonds and other accounts on the market at the moment, you cannot assume you will get your initial capital back, or any growth. And while Fidelity's track record is an excellent one, these funds, to greater or lesser degrees, are subject to the volatility of the world's stock markets. This product is designed for a long term commitment. A minimum savings period of seven years and longer is recommended, though you can sell your shares at any time, without penalty, based on the daily net asset price.
As the world's largest fund manager, Fidelity has over US$540 billion (£343 billion) under management; in comparison, the entire Irish stock market is valued at £16 billion. Fidelity has its fund managers and analysts on the ground in every major market in the world and has been highly successful at stock picking. Last year its researchers and analysts made 60,000 company visits.
The selection of 24 funds offered vary from emerging markets in the Far East to more familiar ones in Europe or America but individual country funds are aimed at higher risk investors. For savers who wish to spread their risk, the International Fund is recommended. The selection is left to the saver, but a fund helpline will be available shortly from the Taylor Group.
The following table shows the fund performance to date of the six regional markets offered by the Global Savings Bond:
Under the SICAV/LCIT regulations costs must be transparent. There is an initial 5.25 per cent charge on the net asset value of the fund (the equivalent of a 5 per cent bid offer spread for traditional unit linked investments) plus an annual management charge of 1.5 per cent. Switches between funds will cost one per cent.
As a Luxembourg based SICAV, no taxes are applied directly to the fund which works to the benefit of the fund manager who is not constrained by always needing to meet an annual income or capital gains tax bill.
The individual investors tax bill comes in the form of Capital Gains Tax and operates in the same way as any investment in shares. Investors get the benefit of indexation relief (i.e. the effect of inflation) and can utilise their annual Capital Gains Tax allowance of £1,000 per annum (£2,000 for a married couple). You only pay the CGT of 40 per cent on any real gain when you sell your shares.
An information pack is available about the Fidelity World Global Bond from the Taylor Investment Group, Tel. 668 1499 or by Fax 668 2653.
