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  • Casual Articles - Making Riskier Investments: How Split Funds Work

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    the 'hurdle rate', which is the annual amount by which the asset value can fall before the redemption value is cut back. It is expressed as a negative percentage of the asset value.

    Zeros could be good for investing for school fees, for example.

  • Highly geared shares, which receive income plus growth, th
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    Split funds are investment trusts with a fixed life, where the shares are divided into more than one category. The simplest form is a split between capital shares and income shares, where the income shares receive all the income and the capital shares all the capital growth.

    Capital shares are more risky because at the end of the investment period the income shares are paid back at, usually, the original investment amount and the capital shares receive the balance. They may be of particular interest to higher rate taxpayers as there is no income tax to pay, only capital gains tax at the end.

    Income shares are less risky and may be of more interest to those needing income, such as pensioners.

    There are other variations:

    • Zero dividend preference, shares (zeros), which receive no income during the investment period. Instead they are repaid at a fixed amount on redemption, which is taxed as a capital gain rather than as income, so the yield is known at the outset. They have first claim on the assets at redemption.

      There is a slight risk with zeros, as there could be insufficient assets to meet the final commitment and for this reason the yield tends to be over 7%, but in fact there has never been a failure so far. Comparative risk is measured by the 'hurdle rate', which is the annual amount by which the asset value can fall before the redemption value is cut back. It is expressed as a negative percentage of the asset value.

      Zeros could be good for investing for school fees, for example.

    • Highly geared shares, which receive income plus growth, the
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      e end of the investment period the income shares are paid back at, usually, the original investment amount and the capital shares receive the balance. They may be of particular interest to higher rate taxpayers as there is no income tax to pay, only capital gains tax at the end.

      Income shares are less risky and may be of more interest to those needing income, such as pensioners.

      There are other variations:

      • Zero dividend preference, shares (zeros), which receive no income during the investment period. Instead they are repaid at a fixed amount on redemption, which is taxed as a capital gain rather than as income, so the yield is known at the outset. They have first claim on the assets at redemption.

        There is a slight risk with zeros, as there could be insufficient assets to meet the final commitment and for this reason the yield tends to be over 7%, but in fact there has never been a failure so far. Comparative risk is measured by the 'hurdle rate', which is the annual amount by which the asset value can fall before the redemption value is cut back. It is expressed as a negative percentage of the asset value.

        Zeros could be good for investing for school fees, for example.

      • Highly geared shares, which receive income plus growth, th
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        of more interest to those needing income, such as pensioners.

        There are other variations:

        • Zero dividend preference, shares (zeros), which receive no income during the investment period. Instead they are repaid at a fixed amount on redemption, which is taxed as a capital gain rather than as income, so the yield is known at the outset. They have first claim on the assets at redemption.

          There is a slight risk with zeros, as there could be insufficient assets to meet the final commitment and for this reason the yield tends to be over 7%, but in fact there has never been a failure so far. Comparative risk is measured by the 'hurdle rate', which is the annual amount by which the asset value can fall before the redemption value is cut back. It is expressed as a negative percentage of the asset value.

          Zeros could be good for investing for school fees, for example.

        • Highly geared shares, which receive income plus growth, th
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          he yield is known at the outset. They have first claim on the assets at redemption.

          There is a slight risk with zeros, as there could be insufficient assets to meet the final commitment and for this reason the yield tends to be over 7%, but in fact there has never been a failure so far. Comparative risk is measured by the 'hurdle rate', which is the annual amount by which the asset value can fall before the redemption value is cut back. It is expressed as a negative percentage of the asset value.

          Zeros could be good for investing for school fees, for example.

        • Highly geared shares, which receive income plus growth, th
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          the 'hurdle rate', which is the annual amount by which the asset value can fall before the redemption value is cut back. It is expressed as a negative percentage of the asset value.

          Zeros could be good for investing for school fees, for example.

        • Highly geared shares, which receive income plus growth, there being no capital shares, the other part of the split usually being zeros.
        • Participating income shares, which receive some of the capital growth as well as all the income.
        • Stepped preference shares, which receive dividends increasing in steps over the period of investment.

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