Buy one free and get another free

The end is nigh for the tax year and for investors who want to take advantage of tax breaks on offer via Individual Savings Accounts.

The run up to the end of the tax year is often referred to as the "ISA" season, when investors rush to take advantage of the tax breaks available to them if they use ISAs. The tax breaks are only available once in every tax year so investors have to either use them, or lose them.

It is also a time of the year when product providers offer discounts on their charges to entice savers into their particular investment funds.

Canny investors can cash in to get a saving on their investment fund ISAs, but there are also ways of getting other discounts all-year-round. If you don’t know about these cut-price deals then let help you.

What is an investment fund ISA?

Currently you can invest up to £4,000 a year in an investment fund mini ISA or £7,000 in a Maxi ISA. This will rise to £7,200 from April 2008.

Underlying these ISAs is a choice of three kinds of investment funds – unit trusts, investment trusts and open-ended investment companies or Oeics. All three pool the assets of a number of investors and invest in a broad range of stocks and/or bonds. This means investors can avoid putting all their eggs in one basket.

They are not free

All funds usually come with set-up and annual management charges. Unit trusts and Oeics normally have an initial charge of five to six per cent. This pays for any commission due to a broker and the administration cost of setting up the investment. Investment trusts have initial charges too, whether in the form of stockbroker fees or charges made by the trust’s management company.

The annual management charge or AMC on unit trusts and Oeics is usually around 1.5%, about a third of which goes to the broker and the rest to the fund manager. Investment trusts usually have lower AMCs.

But you can get deals

You can get discounts on initial or management charges and sometimes even both. Firstly, many fund management companies sacrifice some of their share of the initial charge. These offers are often made for limited periods at the end of the ISA season.

Secondly, some brokers will sacrifice some or even all of their initial commission. And finally, some brokers will even sacrifice some of their share of the annual management fee.

Deal or no deal

Generally, a 3% discount on the initial fee for a £7,000 investment means an extra £210 will be invested in your ISA at the outset. Assuming 7% annual growth and an annual management charge of 1.5%, this will give you an extra £275 over five years, although this does not take account of other administrative fees that can be taken from the fund.

With a 5% initial charge but a 0.25% discount on the AMC, for a £7,000 investment growing by 7% per annum over five years you will get an extra £103. Clearly, a combination of the two discounts will give your investments a healthy boost.

Tracking down deals

Investment companies like to boast about their discounts, so keep an eye out for ads. But the internet is one of the best sources. To find brokers offering discounts on their own commissions and any special deals they may have negotiated with the fund managers, search the web with key words such as ‘ISA’, ‘discount’, ‘broker’ and ‘investment fund’. charges zero initial commission on investments made through its website. Click through on the Investment button to find out more.

But remember discounts aren’t everything

Finding a discount is great, but you should not just invest with the cheapest funds. A good fund with no discounts can still give you a better return than a cheap fund with poor performance.

Make sure you find the right fund for you before taking advantage of any discounts. If you need to see an adviser be warned that you may well lose some or all of your discount to pay for the advice.

Alternatively, take a look at a panel of best performing funds by clicking through the Investment button on, where 1,000 funds are listed and there’s even the option of speaking to an adviser for guidance!

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