Achi news desk-
The single most popular investment in the UK as the ISA deadline approaches is not a single fund or stock but a gilt, according to Interactive Investor.
UK gilts, or Government bonds, have remained the most popular asset for the 10th consecutive month, even as falling yields mean returns are not as strong as they could have been in second place half of 2023.
Gilt TN25, due in January 2025, was the highest asset in terms of net flows, while T26 and TG24 were not far behind.
The top gilts managed to beat all the most popular funds in the country, be they active funds from stock pickers such as Terry Smith or passive funds that track indices such as Wall Street’s S&P 500. They also beat all of r most popular individual shares, from perennial widely. holding British investments such as Lloyds to recent popular choices such as Nvidia.
For much of the post-global financial crisis period, gilts were only popular with those looking for ultra-safe assets, as low interest rates meant returns were minimal. But stronger returns have turned them into a more mainstream investment.
Gilts also offer tax benefits compared to shares, making them attractive to savers who have increased their ISA allowance. Treasury backed assets have a principal amount and a coupon – which acts as interest. They are then traded on the open market, with recent increases in interest rates encouraging investors to sell them for much less than the principal value.
The coupon is taxed but the differences between the principal and the open market price are not. This means that gilts issued at a time of low rates are very tax efficient, as most of the gains realized by savers are due to the principal being above the market price.
For those who have not yet increased their ISA allowance, gilts can still be included in an investment ISA. All types of assets included in an ISA would be subject to the tax relief applicable under the allowance.
The “yield” of a gilt is the effective interest rate when the coupon and the difference between the principal and the market price are taken into account.
Sam Benstead, fixed income specialist with interactive investor, said: “Many may be surprised to find that it is not a popular fund, investment trust, ETF or share that has been attracting the most cash since last summer. But it makes a lot of sense that TN25, alongside other early maturing gilts, have seen a lot of cash flow into them.
“Firstly, gilt yields hit a recent peak last summer of around 5%, causing many investors who had avoided bonds to pay attention. That kickstarted flows into the asset class.
“Along with tax benefits due to low coupons, there were still good low-risk returns available for investors who have maxed out their ISAs and have cash they want to lock up for relatively short periods.”
The deadline for savers to use their tax-free ISA allowance is 5 April.
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