How to buy Isas cheaply

Ben Lundie, head of development for Hargreaves Lansdown's fund supermarket, Vantage, says: "The clear benefit of fund supermarkets is that they allow investors to combine all of their tax wrapped investments in one place, regardless of how many different underlying investments are held. Funds from groups such as Jupiter, Invesco and Artemis can be combined in one Isa wrapper. Fund supermarkets are for investors of all sizes, be it £1,000 or £100,000 - the benefits are there for everyone."

The benefits of fund supermarkets include the convenience of receiving a single statement for all your investments and accessing your portfolio whenever you wish. Most also boast useful online research tools and provide investors with regular fund recommendations.

But the best feature of using a fund supermarket is reduced cost on fund charges, which can make a significant difference to your Isa investment over time. The sheer volume of funds sold by fund supermarkets, enable them to offer attractive discounts on the initial charges - and some discount the annual management charges too. This is far more cost-effective than buying direct from fund managers, which incurs full initial charges of between 5 per cent and 6 per cent and annual charges of 1 to 1.5 per cent.

A final and crucial consideration, is the variety of funds on offer. While most fund supermarkets offer access to a range of open-ended funds, not all have access to investment trusts.

It is also worth noting that while some fund supermarkets, as they are often called, sell to the direct investor, others are only available via independent financial adviser (IFA) firms.

Market players

In the UK more than £75 billion is held on fund supermarkets. The so-called 'Big Four' - Hargreaves Lansdown's Vantage service, Fidelity's FundsNetwork, Cofunds and Skandia's supermarket - hold close to 90 per cent of the total assets under administration. However, the Cofunds and Skandia platforms are only available through IFAs.

Fidelity FundsNetwork is one of the longest-standing and biggest players in the UK. While traditionally associated with the IFA market; direct investors can also access the supermarkets' offering of 1,100 funds from 60 partner fund groups.

While FundsNetwork offers a range of useful online tools and applications, the supermarket does not offer investment trusts other than the ones held in Fidelity's investment suite. However, Rob Fisher, head of Fidelity's UK personal investments, points out that investors can access a broader range of investment trusts via Fidelity's share-trading service, ShareNetwork.

According to Mr Fisher, FundsNetwork's costs vary; some funds having a zero initial charge, while others can have a maximum price of up to 1.25 per cent if accessed online. He adds that while there is no actual charge for the Isa account, investors switching between funds or fund groups will pay a switching charge of 0.25 per cent. The annual management charge of the fund itself will also apply.

Hargreaves Lansdown's Vantage Service is the group's direct-to-private investor fund supermarket boasting in excess of 2,000 funds, including investment trusts and exchange-traded funds (ETFs). Investors also have access to 190 fund managers.

The key selling point of this supermarket is its extensive free investment research and fund recommendations.

According to Mr Lundie there are no further annual charges for holding any fund for which the group receives renewal commission. He adds: "For the funds on which we do not receive renewal commission there is a further Isa annual charge of 0.5 per cent plus VAT.

"We also share our renewal commission, giving investors up to 0.25 per cent in loyalty bonuses per year."

Another advantage the Vantage Service has over competitor supermarkets is that it charges no switching fee.

Other fund supermarkets worth a look include:

Alliance Trust Savings is one of the youngest players in the market, having only launched in August last year. The platform offers investors a choice of top fund managers, with the total number of funds tallying 750, plus 300 investment trusts. Funds can be accessed alongside an extensive range of investment options, including investment trusts and ETFs.

Alliance Trust Savings pays back to the investor all the commission it receives from the fund management groups. No other fund supermarket in the UK currently does this.

While this factor, along with the platform's fixed, flat rate online dealing charge of £12.50 per deal, regardless of size, might seem tantalising, not all fund management groups are available. Notable absences include Artemis and Invesco Perpetual, but Alliance Trust Savings says negotiations are in progress with various fund management groups.

Also absent are fund recommendations - you have to do your own research.

TD Waterhouse owns and runs its own in-house fund supermarket. Via its Trading Isa, investors can access more than 1,120 mutual funds from 34 fund managers. According to Huw Thompson, TD Waterhouse investor centre manager, close to half of these funds - 590 to be exact - carry a zero initial sales charge. He explains: "We have no commission charges, so there is no cost for an initial investment into those funds with a zero initial sales charge, as we do not apply our own commission to it. Nor do we charge a switching fee, should you move between two funds that both have a zero initial fee."

Of the funds that do carry a sales charge, around 357 are priced at 0.25 per cent. If you hold £3,600 within an Isa with TD Waterhouse, no annual administration fee will be charged, regardless of what investments are held within it.

Although the fund supermarket has a section on fund research, it isn't as comprehensive as that offered by Hargreaves Lansdown.

Fund Supermarkets as of 31 December 2008 (Source: Hargreaves Lansdown)