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7 January 2008
Low ISA charges have long term benefits for SIT ISA investors
Through its wholly owned subsidiary, SIT Savings Ltd, The Scottish Investment Trust PLC is offering ISA investors the opportunity to invest in a widely diversified portfolio of global equities with one of the most competitive charging structures in the investment trust ISA market.
The Scottish Investment Trust's SIT Savings Ltd is one of the few ISA providers with a capped pricing structure, which can be beneficial to investors.
The SIT ISA carries no initial charge (there is no initial plan charge or dealing charge; external expenses, government stamp duty of 0.5% and dealing spread which has averaged 0.5% over the last 3 years, apply). The annual charge is only 0.6% of the value of the ISA investment and is currently capped at £30 + VAT (£35.25), no matter how much the investment grows or how many years' ISA allowances are invested with SIT. The 0.6% charge benefits small investors who, for example, would only pay £6 for an investment valued at £1,000 while the £30 + VAT cap favours larger investors with, for example, an ISA valued at £7,000, who would pay the capped charge - £35.25 (£30 + VAT) compared to £42 (the percentage charge of 0.6% of the value of the investment).
The detrimental effects of high charges on returns can be hard to spot, but investors with large ISA investments can make sizeable savings in charges by choosing their ISA provider carefully, paying particular attention as to whether the charges are percentage based or a fixed rate or capped charge.
For example, if investors had been able to invest £7,000 for each tax year since the launch of ISAs in 1999, they would have invested - ignoring any gains or losses due to market movements - a total of £63,000 over this period. The annual SIT ISA charge on a portfolio of £63,000 would be only £35.25 (£30 + VAT) compared to £315 paid by an investor in an ISA with a seemingly small percentage annual management charge of 0.5%.
The SIT ISA provides a very cost-effective entry into The Scottish Investment Trust's professionally managed portfolio of global equities. The diversity of SIT's investments means that risk is spread over numerous companies, sectors and countries, while allowing a wide search for investment opportunities. SIT has seen a sustained good performance, showing a net asset value per ordinary unit (NAV) total return (with borrowings at par, dividends reinvested and before expenses are deducted) of 19.5% over the 12 months to 31 October 2007 (112.1% over 5 years) (source: SIT).
The SIT ISA also provides the following additional advantages:
- Investment Growth is free from Capital Gains Tax – This advantage is greater for investments held over the long term.
- No Need To Declare On Tax Return - Money invested in and dividend income received from an ISA does not have to be declared on a self-assessment tax return.
- Free ISA Transfer-In Facility – SIT does not charge investors to transfer existing equity ISAs held with other managers into The SIT ISA.
- Simple Application Process – SIT Savings offers several routes to application. Investors can apply by downloading the application form available on the SIT website (www.sit.co.uk), or by requesting the information pack from SIT on 0800 42 44 22 or by asking their IFA.
- Planning Flexibility – Investors have the choice of payment options, either by monthly direct debit (minimum £50), through lump sum payments (minimum £500) which can be made at any point during the tax year, or a combination of both. Additional lump sums can be added up to the annual investment limit (currently £4,000 for a Mini stocks and shares ISA and £7,000 for a Maxi stocks and shares ISA – per person per tax year) without the investor needing to make an additional ISA application.
- Easy Administration – Investors receive a twice-yearly report on their ISA's performance and can view their ISA account on line.
Sherry-Ann Sweeting, Marketing Manager, SIT Savings Ltd, says, "Our research has shown that, along with fund performance, charges rank at the top of investors' criteria when choosing an investment product. We all know that past performance is not a guide to the future and market movements are something investors have no control over. Charges can be as material to returns from an investment as the performance of the fund, but they are something the investor does have control over – in their selection of product / provider. Therefore, it is very important for investors to consider charges when selecting their investments.
"SIT's stocks and shares ISA combines access to a global portfolio of international equities with a highly competitive charging structure."
The table below shows how SIT's capped flat rate ISA annual charge compares to a modest percentage ISA annual charge. This is an illustration based on a notional investment only and does not take any account of market movements.
SIT's capped flat rate ISA annual charge compared to a percentage ISA annual charge
Over 9 years this would bring the total annual charges paid by an investor to:
0.5% ISA annual charge £1,575
SIT's Capped £30 + VAT ISA annual charge £317.25
Past performance may not be repeated and is no indicator of future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations and investors may not get back the amount originally invested. SIT has a long term policy of borrowing money to invest in equities in the expectation that this will improve returns for SIT shareholders. However, if markets fall, these borrowings will magnify any losses.
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