The recent changes to CGT rules led many investors to realise assets ahead of the new regime. We discuss what people can do with their new-found cash.

As an investor you have a wide range of options open to you when faced with the decision of what to do with a large lump sum of money. You should first decide whether your objective is income, growth or a combination of the two. If it's income, how much do you need?

Weighing Up The Risks

The next step is to assess the level of risk you're prepared to accept. Given the implications of the credit crunch, even cash deposits at some banks carry risk, so timescale has become very important. If you do not need your capital for, say, five years or more, you can afford to take more risk, provided that your income needs are met.

Cautious investors may gravitate towards cash or bonds. Cash deposits can be structured by, for example, using single premium investment bonds to enhance net returns – particularly for higher-rate taxpayers. There has been growing interest in 'quality' bonds, such as those provided by the Government, which run on a conventional and index-linked basis – although rates may not be exciting enough for 40% taxpayers.

Beating inflation is a priority for many investors. If this is the case, Index-Linked National Savings Certificates can be useful. They offer 0.35% per annum above inflation, tax-free over five years. However, there is a cap of £15,000 per individual. Alternatively, a nine-year index-linked gilt provides a net real yield of around 0.8% above inflation for a 40% taxpayer.

Take Your Chances

More risky, but of interest to some investors, is the concept of absolute rather than relative returns, i.e. your investment aims to grow even if markets are falling. However, check the details and find out, for example, if the product 'bets' on markets through derivative trades or using hedge funds.

Structured products also compete in this space by offering protection of your initial capital and giving a return linked to the performance of, for example, the FTSE-100 Index over, say, a five-year period. These products rely on the quality of the ultimate capital guarantor, so avoid those with ratings below AA.

Equity investment either in individual stocks or through collective funds such as unit trusts and Oeics is another option, but again, remember the risks. Returns are dictated by market movements and results are heavily influenced by asset allocation. For example, if your investments are UK-biased and the UK market falls by 10%, you will suffer.

Don't Delay

Given the maze of investment options, advice is essential. But perhaps the biggest risk is leaving new-found wealth on deposit where it loses value over time. Inertia is not an option.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.