Crazy Season

Four in 10 active UK investors have already bought an investment ISA ahead of the annual last minute rush into these tax efficient savings tools, new research reveals.

However an attractive 16% of all active UK investors are yet to invest but are indicating a willingness to do so before the end of March.

And it’s this group that will largely fuel the annual dash to buy before April.

This is based on past years’ behaviour, with the tail-end of the 2010-2011 tax year seeing a rush of investors injecting money into investment ISAs to post net sales of £956m between March 1 and April 5 – these last minute ISA purchases led to the highest net sales recorded during this period of the year since 2002.

Meanwhile, of those who have already invested for the current year, almost half (46%) have done so up to the threshold limit of £10,680.

However, as we enter the silly season  when many investors rush to put spare capital into one or more ISAs, almost one in three have no intention of buying one this year (2011/2012 tax year).

Some 29.7% of all active investors are adamant they will not invest in an investment ISA in the current tax year.

Despite the vast majority of consumer ISA purchases being typically in cash only, many active investors choose to top up the additional £5,340 cash threshold available with an investment ISA, or simply opt to not put any in cash at all but rather place the full allocation of £10,680 into an investment ISA.

Since the ISA wrapper was introduced in April 1999, the structure has gone from strength to strength and gained popularity among the investing public, allowing access to investment returns free of capital gains tax.

Investors can choose to save half of their ISA allowance (£10,680 for the 2011-2012 tax year and £11,280 for the following year) in a cash product and invest the other half in stocks and shares. They can also decide to invest their whole allowance in stocks and shares.

Although they could, in theory, buy any listed company’s stock, investors more often chose to access the financial markets through financial products, such as managed funds, OEICs and investment trusts.

The investment ISA universe caters for all types of investor and this brings with it an added appeal. Some products suit first-timers looking for something conservative while others are more appropriate for more experienced investors who want long-term capital growth.

Even investors on the hunt for a more niche or risky exposure can find a product to meet their needs and also fit into the ISA wrapper.

Furthermore, planned regulatory changes can ensure that any failure of a product provider has a reduced negative impact on investors.

Last month, the UK Treasury announced plans to allow ISA savers to re-invest their assets should the product provider (be it a bank or an asset management company) collapse.

At present, any investment lost due to failure of the provider is counted as part of the yearly ISA allowance.

Under revised rules, savers should be able to invest an amount to that lost without affecting their allowance.

Investment ISAs serve as an introduction for investors to the world of funds management, all through a wrapper with which they are familiar and which also provides tax benefits.

These products allow fund managers to begin to build brand awareness among investors and should they be satisfied with their investment ISA, this group of savers may consider extending the fund manager’s mandate to include other financial products.

Therefore the aim of the CoreData Research study behind the aforementioned statistics is to increase understanding of those investors who currently invest in investment ISAs and who plan to allocate more money to this product type going forward.

The report classifies who is buying investment ISAs, highlights the expected asset flows into investment ISAs over the coming year and explores how investors buy investment ISAs, asking questions such as whether they go direct or through an adviser.