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    Investment clubs

    Investment clubs
    There are more than 3,500 investment clubs around the country and more than 100 open each month as people from all walks of life find out that investing is an absorbing hobby as well as a potential way of making money.

    Clubs meet once a month for a couple of hours to discuss how to play the stock market. The nominated treasurer or chairman may spend another hour or two a month extra. The group’s members – by law there can be no more than 20 – may be family, work colleagues or simply friends. They do not have to be investment experts, simply people interested in trying to make money through buying and selling shares.

    Members decide on a monthly subscription to raise cash to buy shares. With some clubs it is as low as £10 per member, but more typically the subscription is around £25-£30. The only other expense is the broker charges for selling.

    It is often easier to start up your own club with friends who share your attitudes towards stock market investing that it is to join an existing club – most are either full or wary of inviting strangers to join them. Details of how to set up and run a club are available from ProShare, a non-profit company that promotes responsible investing. Order at or telephone 020 7394 5200 to order by credit card. This Is Money readers get the manual for a reduced £17 plus £3 postage and packaging. If ordering online quote This Is Money for your discount. It is not essential to join ProShare to start a club, but it offers useful guidance and backup – and is free for the first year.

    Once you have a group of interested people together, you need to name your club and nominate a chair, a treasurer who looks after buying and selling the shares and a secretary who keeps records of the minutes. You then need to fix the monthly subscription and discuss the investment policy.

    Your club also needs a constitution, the rules of which every member agrees upon and signs. Often banks or building societies want to see your constitution before they will open an account for you. The club needs an account to deposit money, receive dividends and meet any running costs. You can have an account in the name of the club, but you need to nominate two or three people (usually the treasurer and another person) who can write cheques on behalf of the club. Members then set up a standing order to pay their monthly subscriptions into this account.

    Deciding what to buy depends on your club’s ideas. Investment clubs are democratic – each investment decision is taken by a majority vote. Are you cautious investors, willing to be the tortoise rather than the hare? Or do you prefer to buy and sell frequently, taking a more short-term view? These are key issues that you need to work out. Either way the information on This Is Money is your invaluable starting point for investment decisions.

    TIP: Clubs must ensure that they do not give ‘advice on investments’ to outsiders, as this is against the law.

    You buy the shares through an execution only stockbroker, who buys and sells shares for the club (see INVESTMENT – Shares and TAKING ADVICE – Stockbrokers). He does not give advice on specific shares.

    A share certificate cannot be in the name of a partnership and, technically, investment clubs are partnerships. So shares are held through a nominee company which is operated by a stockbroker which allows its name to be used for the registration of shares. A formal agreement is drawn up between the broker and the club, and two members of the club act on its behalf. Doing this helps speed things up as well as keeping costs and administration down. Providing your club conforms to all the requirements of its stockbroker agreement, there will be excellent safeguards in place to prevent a member retiring to the Bahamas with the funds.

    You must tell the Inland Revenue when you form an investment club, as with any source of income. At the end of the tax year the club’s treasurer distributes the club’s gains and income equally among the members. You qualify for something called a Simplified Scheme if subscriptions are not more than £1,000 a year, membership is not more than 20 people and the total net gains of the club are not more than £5,000. You need to get form 185-1 from your local tax office and every member must fill one in.

    The rules for leaving the club are in your constitution, but usually you will have to give three months’ notice before you can withdraw your money. The amount you get is calculated by multiplying the number of stocks being sold by the current value, deducting brokerage fees and adding any surplus cash to his/her credit.

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