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Inside edge

Why on earth does everybody rush around with last-minute Isa applications? Why do investment managers set up handy drop-off points up to midnight on April 5 each year? Why do personal finance supplements grow fat with recommendations, statistics and advertisements?

Is it because we care so much about investors that we cannot bear the thought of them missing out on all those juicy (allegedly) tax breaks? Or is it because the salesperson in us knows that there is nothing like a deadline to boost sales?

Effectively, we are all – fund managers, advisers and the media – engaged in an unspoken pact designed to corral investors through the purchasing channel and boost our funds under management/commission/advertising revenue. We have become the equivalent of the old motor industry trap brought about by the annual licence plate change in August.

But, for the investor, is investing a lump sum in the first quarter each year really a rational way of investing?

Nobody can tell for sure whether an annual lump sum will turn out better or worse than the same money invested on a monthly basis.

But you can be sure that when you invest monthly, you get a lower-risk profile for your return.

Just as investing in a collective fund gives you stock diversification and protection from stock-specific risk, investing monthly gives you price diversification and therefore protection from a sudden fall in the market (price risk).

So, unless the investor, or their adviser, believes they have special skills in calling the market, monthly savings are a better bet. This is particularly the case if we are being asked to make a call on the basis of investing in the first quarter year after year.

Notwithstanding this harsh reality, the fact is that advisers should be reviewing clients&#39 affairs at least once a year. When they do review the direction of a client&#39s monthly savings, they should consider investment trusts very carefully.

Of course, the sector has suffered from some negative publicity concerning split-capital investment trusts but it would nonetheless be a severe dereliction to ignore investment trusts altogether as a result. Even in the split-capital sector, there are many trusts that have no bank debt and no investment in other splits. Many people in the industry believe there are some real buying opportunities here as their share prices have been caught in the crossfire.

Conventional investment trusts offer the widest range of collective investments at some of the lowest prices. With independent boards and some of the lowest charges around, they represent a great choice for private investors.

Monthly savings plans also deliver benefits to fund managers, advisers and the media. For managers, the lump sum is very vulnerable to a loss of confidence. With monthly savings, those investments keep coming in, come rain or shine. Initially, there is less money under management and greater admin costs but this is more than outweighed by the long-term benefits. There is a greater chance that a monthly saver will continue next year&#39s Isa with you rather than a lump-sum investor who is self-certifiably promiscuous.

Advisers can benefit from monthly savings by staggering clients&#39 annual reviews. A redirection can be selected at any time without compromising the Isa tax break.

The media could benefit from a more consistent flow of advertising revenue. I would benefit personally from having to read through fewer Isa supplements, guides and other marketing promotions in a two-month period. But, most of all, the winner would be the client.

Daniel Godfrey is director general of the Association of Investment Trust Companies

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