Small investors return to Isas

SMALL investors are regaining their appetite for investment, new figures show. The number of Isa and Pep accounts has grown for the first time since the beginning of 2002, from 1.48m in June to 1.5m in September, according to the Investment Management Association.

Gross sales on these tax-free accounts also increased 6% from £370m to £393m - the first increase since spring 2001.

'Investment fund sales in September continued the encouraging trend of recent months,' said Richard Saunders, chief executive of the Investment Management Association. 'Savers appear to be cautiously returning to the market.'

However, detail in the figures reveals that small investors have continued to pile into corporate bond funds - despite a slump in the performance in recent months.

Industry figures reveal £93m, nearly 40% of the £258m net flow of money into Isa funds in September, were bound for UK corporate bond funds.

Investors have flocked to bond funds throughout the year with strong performance in 2001 and 2002 standing out against a slump in the stock market.

However, independent financial advisers have issued several warnings that investors are unwise to chase yesterday's winners. The view has been vindicated so far this year with shares bouncing back while bonds languished.

Bond values tend to fall when interest rates rise, hence the recent poor performance. Economists are currently expecting the Bank of England to raise UK rates from 3.5% to 5% by the end of next year.