Don't be fazed, phase your investment in

Thanks to the chaos on the stock markets, investors have been leaving a decision on whether to take out an equity ISA until the last minute. Now, with time running out to use or lose this year's £7,000 allowance, many are resigning themselves to sacrificing the opportunity because the market hasn't picked up.

Thanks to the chaos on the stock markets, investors have been leaving a decision on whether to take out an equity ISA until the last minute. Now, with time running out to use or lose this year's £7,000 allowance, many are resigning themselves to sacrificing the opportunity because the market hasn't picked up.

However, you can still invest in equities while minimising the risk. Many people are buying time by keeping their money in cash and feeding it on to the stock market over several months, rather than in a lump sum. Known as "phasing", this strategy allows investors to smooth out some of the market's peaks and troughs.

"Clients have only a few weeks before the end of the tax year, so we are recommending the phasing option to most of them," says Philippa Gee at independent financial adviser (IFA) Torquil Clark. "The fund manager will invest the money in the market over the following six months, so the risk of bad timing is removed."

She recommends using Fidelity's FundsNetwork to phase your money in as it will give you a wider choice of funds than you'd get with an individual manager. However, Foreign & Colonial, Henderson Global Investors and Invesco Perpetual all offer phasing, with different periods of three, six or 12 months.

It works like this: if an investor allocates £7,000 on 3 April, the fund manager will divide this into, say, six equal amounts and invest one sixth (£1,166.66) immediately. The rest of the money will be held in a cash account earning interest. This tends to be a negligible rate, in line with Inland Revenue rules – usually a couple of percentage points below the Bank of England base rate.

Over the following five months, five equal instalments will be invested on the same day each month, until the full £7,000 is held in an ISA.

"Drip-feeding money in – rather than being forced to invest all in one go before the tax deadline – could help investors average out the market's ups and downs," says Ann Davis, an executive director at Fidelity Investments.

"It is better to phase the money in over time rather than not invest at all," adds Nikki Foster at IFA Chase de Vere. "At the moment, with prices so low, I would prefer it if an investor with a lump sum to invest put it all into the market. But because there is so much uncertainty, people are nervous of doing that."

If you do decide to phase your money into an ISA, you should choose the same funds you would have gone for if you had invested a lump sum. "Make sure you are following the same investment strategy," advises Ms Foster. "You need a good geographical and sectoral spread."

Phasing doesn't cost any more than investing a lump sum, so you don't have to worry about extra fees. Expect to pay an initial charge of around 5 per cent for a unit trust, plus annual management fees of up to 1.5 per cent.

Drip-feeding your money into an investment over several months is a good discipline to adopt as it reduces the risk of entering the market at the wrong time. After 5 April, it may be worth setting up a direct debit from your current account to phase the money into an ISA.