Stockmarket - Investing Directly as opposed to via Quinn Life

As I see it (please suggest changes/edits to this if incorrect):

Commissions

Option 1: Investing in shares directly - 0.75% one-off charge assuming you invest a minimum of €2,666 in each trade via www.nib.ie sharedealing service. Nothing after this.

Option 2: Investing with Quinn Life - Annual charge of 1%.


Taxes

Option 1: At marginal rate annually on dividends, i.e. 20% or 42%. Let's assume an annual yield of 2.7% (this is the ISEQ 20 yield for 2005 - see link below). At a tax rate of 42%, your annual tax on dividends would be 42% of 2.7% which is 1.13% of total fund value. At a tax rate of 20% your annual tax on dividends would be 0.54%. Then, when you sell your holding, the tax on gains will be 20% (CGT). There will also be a 1% stamp duty on the purchase of shares using this option.

Option 2: No dividend tax but a tax on gains of 23%. This 23% will also be paid on the dividends that have accumulated within the fund. With dividends at 2.7% p/a, the 23% tax (payable on exit) equates to 0.62% of fund value per year.



Summary

...............................Option 1................Option 2........................
Entry Charge.............0.75% of value..........Nil................................
Annual Charge...........Nil...........................1% of fund value.............
Dividend Tax.............0.54% / 1.13%...........0.62% p/a - paid on sale..
Exit Tax ..................20% of gain...............23% of gain....................
Stamp Duty..............1% of value...............Nil........................... ......


Conclusion (assuming you're a 42% taxpayer)

Option 1: In a 5 year timeframe, the entry charge works out at 0.15% p/a, the the dividend tax works out at 1.13% p/a and the stamp duty on purchase works out at 0.2% p/a. Then when you sell, you'll pay 20% of fund value.

Option 2: There is a 1.62% annual charges as opposed to the 1.38% annual charges when buying shares directly. Then, when you sell, you'll pay 23% on gains.


Which option is best?

As can be seen above, the charges for option 1 works out at 0.05% cheaper per year which is a very minor difference. Then, the tax on gains in the value of your shares works out at 3% cheaper using option 1. Assuming that your shares (without dividends reinvested) rise at 5% per year, after 5 years your gain will have been 28%. Therefore, you would be saving 3% in exit tax on 28% of the fund value = 0.85% of fund value. When this saving is added to your 0.05% per year for 5 years saving in other charges, it means that, after 5 years, you will have saved 1.1% of the fund value by using option 1.

In conclusion, you should invest directly in shares if you view it as a hobby and enjoy reading the financial pages of the newspapers and like the idea of choosing your own shares. Otherwise, if you would prefer a set amount of money coming out of your bank account each month and being invested in a fund by your fund manager, you should invest via quinn life. The differences in charges do not make enough a difference to have a major affect on the value of your investments. I should mention at this point that one additional advantage of investing directly in shares is that, each year, you get a CGT allowance of €1,270. This means that, every year, you can sell a portion of your shares that have risen in value by €1,270 and avoid paying the 20% exit tax thus saving an additional €254 (less the €20 charge for selling them). This works well if you think that a particular share in your portfolio has risen in value excessively and is now overvalued.

ISEQ 20 Yield:
http://www3.ncbdirect.com/./images/g...h%20Report.pdf