HM Revenue & Customs has warned some funds may not be eligible for inclusion in stocks & shares individual savings accounts after the implementation of the RDR.
According to HMRC, “government securities funds or certain corporate bond funds of funds that guarantee a return to investors” may be afffected.
In its latest guidance, HMRC states each fund meeting Isa requirements will have to pass a “5 per cent test”
The 5 per cent test requires that no guarantee or agreement investors will receive 95 per cent or more of their purchas price within five years.
The test also states “the nature of the investments held by the fund must not significantly limit the risk to the investor’s capital to 5 per cent loss or less within 5 years”.
It writes: “From the end of 2012, the FSA will require firms that give investment advice to be paid by adviser charges, rather than accepting commissions set by fund managers or other product providers.
“This means funds charges will no longer include pre-determined commissions for advisers, which in turn may impact on the eligibility of some funds for the Stocks & Shares component of an Isa.”
The implementation of the RDR could also see certain funds made ineligible for inclusion as initial and ongoing fund charges lower.
“For example, from the end of 2012 fund A’s initial charge is reduced to 0.5 per cent, but it still has a guarantee that losses will be capped at 3 per cent. The fund would then only be eligible for the Isa cash component,” it adds.
HMRC has told firms to identify funds that may be impacted by the change to make changes to systems and literature.
“If the eligibility of particular funds for the Isa Stocks and Shares component is going to change, firms will need to identify all investors likely to be affected and, as appropriate, to consider offering alternatives to the investors affected,” it adds.