'Turn £1,000 into £1,860 in less than six years.' It sounds like an offer from the seedier small-ad columns. In fact, returns like that are available from a relatively low-risk stock market investment.
And what's more, all the gain - which works out at a generous 12.2 per cent a year - is subject to capital gains, not income tax, which means that, for most private investors, it will be tax-free.
What are the drawbacks? First, you have to get your head around the concept of split capital investment trusts.
That may sound complicated but, in fact, they are like any other investment trusts - companies which invest in the shares of other companies - but with extras to try to make them more popular with investors.
These, with generous returns such as those quoted above, are called zero dividend preference shares. That means their holders get no income but,when the trust matures, usually after five or 10 years, they get a guaranteed amount back, provided there is enough money in the pot.
This contrasts with income shares which, as their name suggests, get all the trusts' income but little, or even no, capital return.
Zeros look very attractive now. A rash of new issues last year increased their supply while, as with most investment trust shares, institutional investors are not enthusiastic holders.
Couple that with concern about the level of interest rates and the direction of the stock market - both of which influence the price at which zeros are traded - and prices have been depressed.
But these factors should not affect private investors. They should only consider buying zeros to hold them until they mature.
But that need not mean tying up your money for too many years: some will pay out in as little as six months, although others can have 10 or more years to go.
What private investors should look at is the likelihood that there will be enough to repay them. That means examining cover, or the number of times the assets in the trust will cover the cost of redeeming the zeros.
The example quoted above is from the BFS Income and Growth Trust, one of those favoured by Exeter Invest ment Group, which runs both a unit trust and an open-ended investment company (Oiec) specialising in zeros.
It is now priced at around 96p and will pay out 179p in August 2005. It is, however, one of the riskier zeros. Its cover is just 1.07: in other words, it has just 7 per cent more in its fund than is needed to repay the prefer ence shares.
That could, of course, rise as the fund's investments grow but it could also fall should the stock market drop.
Among the others recommended by Exeter are JZ Equity Partners, which offers the equivalent of 8 per cent a year until maturity in 2009, or Aberdeen Preferred, which matures in 2003 and offers 8.56 per cent a year.
Both are covered more than 1.6 times, well above the average for the sector. Many of the trusts offering zeros are invested primarily in 'old economy' stocks, so their performance should not be much affected by technology shares jitters.
So far, no zero has failed to repay investors in full. But you would be investing in shares, which carries risk.
