Financials such as banks and insurers should benefit from low interest and inflation rates.Chris Wicks,Kidsons Impey Scott Lang”My favourite personal equity plan currently is the Credit Suisse Income PEP. Neil Woodford, the fund manager, is very good, he can choose whatever he wants from the stock market and he really delivers. He manages it on a total returns basis, so if you are the type of investor who wants growing income every year, this is probably not the fund for you. But if you don’t mind a variable income – currently 4.1 per cent – and you want some capital growth, this is a good choice.”Perpetual High IncomeFund manager: PerpetualInitial charge: 5.25%Annual charge: 1.25%Total return over 1 year: 24%Total return over 3 years: 71%Total return over 5 years: 164%Investment strategy: the fund is tilting towards lower-risk sectors.

The charges on the Gartmore UK Index PEP are not the very lowest but its performance has been impressive, probably because it fully replicates the whole UK market.”Gartmore UK Index PEPFund manager: GartmoreInitial charge: 0%Annual charge: 1%Total return over 1 year: 21%Total return over 3 years: 43%Total return over 5 years: 102%Investment strategy: to track the All Share index as closely as possible.Graham Hooper,Chase de Vere Investments”Perpetual High Income. If returns are low, charges become more important – if you get a return of 20 per cent, a 1 per cent charge is not so bad. But if you are only getting returns of 8 per cent, a 1 per cent charge is very significant. The Independent on Sunday asked four leading independent investment advisers to name their favourite ‘peppable’ unit trust. Peter Hargreaves,
Hargreaves Lansdown”As 70 per cent of fund managers do not beat the stock market, and as returns from equities are likely to be lower this year, I would go for an index tracker. IF YOU intend to use your full pounds 6,000 PEP allowance for investing in just one unit trust, you must choose one which has at least 50 per cent of its money invested in UK or EU shares or bonds, writes Clare Arthur.

Borrowers pay only monthly interest on the loan, relying on tax-free growth from the PEPs to repay the capital sum.However, Chase de Vere warns that because of the volatility of any stock market investment borrowers should consider switching to a safer vehicle as the final repayment date nears.. That means many mortgage lenders are now prepared to accept PEPs as a viable mortgage repayment vehicle. If you can afford to put pounds 9,000 a year into your PEPs [both pounds 6,000 and pounds 3,000 PEPs], and not many people can, then by now a husband and wife could have built up pounds 150,000 in a tax-free fund.”Chase de Vere estimates that an investment of pounds 6,000 in a PEP every year for 25 years could produce a final return as high as pounds 500,000. The tax you’re saving is pounds 60 a year.”But the CGT exemption is very relevant for larger investors, who may have already used up their pounds 6,000 annual CGT exemption elsewhere Mr Tora says: “The reality is that PEPs favour the well-off. Brian Tora, a director of stockbroker Greig Middleton, says: “The basic benefit of the PEP is that you save on income tax. If you are a standard rate taxpayer putting pounds 6,000 into a PEP, you might reasonably expect that pounds 6,000 to produce pounds 240 of income a year, that’s 4 per cent.

But if you feel strongly that the best stock market growth over the next few years will come from, say, America or the Far East, then you may be willing to sacrifice the attraction of tax-free returns from a PEP in the hope of getting higher returns elsewhere.For many people, the capital gains tax exemption offered by a PEP will be irrelevant, at least for the plan’s early years. Only pounds 1,500 a year of your pounds 6,000 investment can be devoted to trusts investing outside the EU.Most investors will have no problem with this. Some will put your money into a single unit trust, others let you mix and match from a range of funds of one company.Not all unit trusts qualify for full PEP status. Qualifying trusts must hold 50 per cent or more of their assets in the UK and other European Union countries. Another pounds 3,000 a year can go into a separate single-company PEP, but these are limited to individual shares, not unit trusts.You can choose from more than 300 unit trust PEPs. Besides, who knows what will happen to tax regimes under a Labour government?”You can put up to pounds 6,000 into one PEP each tax year, making both the income and the capital gains from that money tax-free. For example, Morgan Grenfell’s PEP, which offers a choice of eight Grenfell unit trusts, takes just 3 per cent of your money at the outset as a charge deduction, compared with up to 5 per cent if you buy the unit trusts without the PEP wrapper.