At a time when cash savings are yielding negligible returns, many people are looking at investment funds as a way of making their money work for them. Commercial property, in particular, is predicted to deliver strong returns in the coming months. Obviously, none but the wealthiest individuals can buy a commercial property straight-out, so the way that most of us get exposure is through a collective investment fund which invests on behalf of its members.
These funds either own properties outright, awarding returns based on rental income and increases in the value of the buildings (direct investment), or trade shares in property companies listed on the stock exchange (indirect investment).
Commercial property, such as shops, offices and industrial buildings, has several advantages over residential. Firstly, the average life of a commercial lease in the UK is eight years, as opposed to six months; secondly, the tenants are less likely to flit; thirdly, the rents themselves are much higher and subject to annual increases.
That's not to say it's without risks. In 2008, commercial property prices fell by 44 per cent as the sub-prime mortgage crisis in the US triggered further crises around the world. In areas outside London, prices remain around 40 per cent lower than at their 2007 peak.
Indirect investment funds, i.e. those that simply buy and sell shares, normally take the form of unit trusts and open-ended investment companies (OEICs). With unit trusts, the fund is split into units, rather than shares, the price of the unit having a direct correlation to the value of the assets held by the trust. OEICs are run as companies, so investors will buy and sell shares as opposed to units. Again, the share value will directly reflect the underlying value of the investment.
Property investment funds can be either open-ended or closed-ended. Open-ended investments may issue or redeem any number of units (in the case of unit trusts) or shares to their members at any time; the underlying assets are simply added to or sold off according to demand. This can lead to problems if someone wants to exit at a time when the value of assets is low.
The majority of funds are classified as real estate investment trusts (REITs). They buy shares in other companies that have REIT status and don't have to pay corporation tax on their assets. In return, they pay at least 90 per cent of profits to shareholders who, in turn, pay tax at either 20 per cent (basic rate) or 40 per cent (higher rate).
When an investment fund issues a fixed number of shares it is called a closed-end fund. Unlike open-ended trusts, if a member wants to either buy into or sell out of the fund he must do it through the stock market. The tax on dividends is the same as for most other investments, i.e. 10 or 32.5 per cent.
Returns on commercial property investments are beginning to pick up noticeably. The demand for offices and shops is steadily growing, in line with the gradual recovery we are seeing in the economy. Interest from overseas investment funds is also having an effect on share prices.
These funds either own properties outright, awarding returns based on rental income and increases in the value of the buildings (direct investment), or trade shares in property companies listed on the stock exchange (indirect investment).
Commercial property, such as shops, offices and industrial buildings, has several advantages over residential. Firstly, the average life of a commercial lease in the UK is eight years, as opposed to six months; secondly, the tenants are less likely to flit; thirdly, the rents themselves are much higher and subject to annual increases.
That's not to say it's without risks. In 2008, commercial property prices fell by 44 per cent as the sub-prime mortgage crisis in the US triggered further crises around the world. In areas outside London, prices remain around 40 per cent lower than at their 2007 peak.
Indirect investment funds, i.e. those that simply buy and sell shares, normally take the form of unit trusts and open-ended investment companies (OEICs). With unit trusts, the fund is split into units, rather than shares, the price of the unit having a direct correlation to the value of the assets held by the trust. OEICs are run as companies, so investors will buy and sell shares as opposed to units. Again, the share value will directly reflect the underlying value of the investment.
Property investment funds can be either open-ended or closed-ended. Open-ended investments may issue or redeem any number of units (in the case of unit trusts) or shares to their members at any time; the underlying assets are simply added to or sold off according to demand. This can lead to problems if someone wants to exit at a time when the value of assets is low.
The majority of funds are classified as real estate investment trusts (REITs). They buy shares in other companies that have REIT status and don't have to pay corporation tax on their assets. In return, they pay at least 90 per cent of profits to shareholders who, in turn, pay tax at either 20 per cent (basic rate) or 40 per cent (higher rate).
When an investment fund issues a fixed number of shares it is called a closed-end fund. Unlike open-ended trusts, if a member wants to either buy into or sell out of the fund he must do it through the stock market. The tax on dividends is the same as for most other investments, i.e. 10 or 32.5 per cent.
Returns on commercial property investments are beginning to pick up noticeably. The demand for offices and shops is steadily growing, in line with the gradual recovery we are seeing in the economy. Interest from overseas investment funds is also having an effect on share prices.
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