Savers return to equity funds

FEARS that a change in the tax treatment of Isa funds would hit sales in the crucial run up to 6 April appear to have been unfounded.

Figures from the Investment Management Association have revealed £495m flowed into tax-free trusts in March, more than double the £209.5m figure for February and up on £410.5m a year ago. March is considered the most important month for Isa providers as savers rush to use up their £7,000 individual savings account allowance.

The financial services industry had warned that a complicated change to the treatment of dividends on shares and equity funds within Isa would put off savers. A 10% tax credit paid on income was scrapped on 6 April. It effectively means that the only remaining benefit to basic-rate taxpayers with equity Isas is protection from capital gains tax.

'Isa sales in March were stronger than last year, though still well below their peak in 2000,' said Richard Saunders, chief executive. 'Investors have been returning to funds since the middle of last year, and to equities over the last six months. That trend is continuing.'

However, the figures also revealed that net Isa sales for the 2003/04-tax year were £3.6bn, down from £4.1bn for 2002/03.

Investors also appeared to heed a warning from independent financial advisers not to react by blindly backing corporate funds, which will continue to receive a 20% tax credit on dividends.

Isa sales were dominated by the UK all companies sector – home to most equities-focused growth funds - which accounted for 34% of gross sales, followed by UK corporate bonds with 17%.

The least popular funds were those focused on North America and Europe.