Dresdner RCM has introduced the gilt-to-equity Isa, which offers two ways to invest.
Investors can initially go into Dresdner RCM gilt yield unit trust, then make a phased switch into the Dresdner RCM UK equity income unit trust or the Dresdner RCM UK equity fund, an Oeic. The switching occurs in three stages on predetermined dates.
Alternatively, investors can choose one or more of the funds without the phasing option. They can then switch between the funds when they choose, but a charge of 1 per cent for every switch is payable.
Looking at the funds, the Dresdner RCM gilt yield trust invests in British Government securities. It has a current yield of 4.07 per cent, which is tax-free if held within an Isa.
The Dresdner RCM UK equity income trust is managed on a value basis and invests in undervalued UK companies that provide the highest dividend yield or look like good prospects for a growing dividend yield. The Dresdner RCM UK equity fund is an institutional fund which Dresdner has now opened to retail investors. It focuses on UK large caps such as Vodafone and Shell.
This Isa could suit investors who want to use their Isa allowance rather than lose it, but who occupy the lower end of the risk ladder. The automatic phasing may be attractive to cautious investors who want to tiptoe into UK equities. But as the switching dates are predetermined, investors run the risk that the timing may be wrong.
According to Standard & Poor's, Dresner RCM gilt yield is ranked 14 out of 28 funds, Dresdner RCM UK equity is ranked 83 out of 294 funds and Dresdner RCM UK equity income is ranked 33 out of 79 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to February 8, 2002.