Diversify your portfolio with funds this ISA season

With the 2010/2011 tax year fast approaching, Andy Parsons, Advice team manager at The Share Centre, explains why investors should fully utilise the increased ISA allowance and highlights three funds to help with diversification.

"In 2009, the government upped the maximum investment into a Stocks and Shares ISA to £10,200 for investors aged 50 or over. However, come the new tax year all investors aged 18 or over will be able to benefit from the increase. This means investors will be able to squirrel away an additional £3,000 a year from the taxman.

"With interest rates at historic lows, savers and investors alike should plan to make the most of the improved allowance. While see-sawing markets have left some wary of investing in equities, those not ready to invest directly into the stock market could consider funds as a way of reducing their overall risk.

"Funds by their very nature help to diversify a portfolio because they include a variety of equities and other investments. With a diversified portfolio, returns from better performing investments can help offset those which aren't performing as well."

PLATINUM 120 FUND RECOMMENDATIONS FOR 2010

LOW RISK

L&G Dynamic Bond

"This fund is ideal for those seeking additional income and not wishing to increase their risk profile significantly. Its overriding objective is to achieve a total return in terms of both income and capital growth, through a more flexible investment strategy than a standard corporate bond fund. The fund is still relatively new, having only launched in April 2007. Year-to-date, it has returned 2.46% compared to the sector average of 1.91%."

MEDIUM RISK

Invesco Perpetual High Income

"This fund suits those who are unsure which UK income fund to choose, and for those who prefer to follow a manager with a proven track record. Managed by Neil Woodford, the fund has a strong emphasis on investing in solid defensive companies. Despite struggling in 2009 as the fund was defensively aligned, when viewed over a five year cumulative position the fund is ranked number one in the sector, returning 49.29%."

HIGHER RISK

First State Global Emerging Market Leaders

"Over the last few years emerging market funds have become the buzzword, as investors have swooped to benefit from the meteoric rise in some of these economies. This fund offers higher risk investors the ideal way to invest in these regions, given its managers and analysts are involved with the participants of these markets on a daily basis. It invests in around 30-to-60 stocks, favouring large and mid cap companies with the idea being they are held for the longer term, thereby reducing turnover."