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M&G Corpoate Bond ISA for novice?

Investment | ISAs Helpful? 5

Asked by HenryAA, submitted 21 October 2012.

Open Quote I'm a new investor, and whilst browsing came across ISA funds, such as the "low risk" M&G corporate bond.

Having found your website, which I must say is beautifully concise and informative, read the ISA section.

You warn of staying away from ISA funds, which seem to give high % growth with a relatively low risk.

1) Why are ISA funds not a good place invest?

2) Can you suggest another route of investment, for an inexperienced investor, willing to learn and take moderate risk?
End Quote

Answered by Justin on 22 October 2012

I think there may be an misunderstanding re: my ISA page, as high growth with low risk is the investment nirvana!

When putting money in an ISA the key to remember is that the ISA itself is simply a 'wrapper' giving some tax benefits. The investments held within are typically funds or shares you could also hold outside of an ISA too.

The M&G Corporate Bond fund appears to be a good fund of its type. Manager Richard Woolnough has a good performance track record, generally outperforming comparable indices. It primarily invests in investment grade corporate bonds, i.e. loans to large companies which are deemed to be relatively safe in the greater scheme of things. That's not to say you can't lose money, it's not out the question one of these companies won't default on the loan and, more likely, the price of the bonds will fluctuate depending on investor supply and demand.

The main determinants of investor supply and demand (hence bond prices) are interest rates, inflation and markets in general. Rising interest rates and inflation make bonds less attractive, hence tend to push down prices (and vice-versa). When stock markets are turbulent some investors flock to investment grade bonds for relative safety which can tend to push up price prices (as we've seen in recent years).

The M&G fund is probably not a bad place to start for a novice investor. You might also consider some small stock market exposure (for example, via a tracker fund), although there are lots of reasons to expect stock market volatility to remain high. Another route might be to consider investment funds that invest across a range of different assets (such as bonds, stock markets, property and absolute return) to try and spread risk - so-called multi-asset funds.

While I've found Moneysupermarket to be generally competitive for insurance, their ISA/fund proposition is less so. Take a look at our guide to ISA discount brokers to get a feel for which might be a better route for you.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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