I put pounds 1000 in the stock market at about that time and it's worth over

"I put pounds 1,000 in the stock market at about that time, and it's worth over pounds 27,000 today. We've booked a round-the-world cruise - see you in three months' time."The moral, of course, is that for long-term saving, stock market investments are hard to beat. And if you shelter those investments in a personal equity plan, all the money they make is tax free.PEPs were originally introduced to provide a tax break for private investors on the stock market, part of the 1980s campaign to promote wider share ownership. Today, they are a common form of packaged investment product, used mainly as a tax saver for holdings in unit trusts.More than 2.5 million people now have personal equity plans. That sounds a big number but it is less than one-third of the more than 8 million who own shares either directly or indirectly through unit or investment trusts.Robert Browne-Clayton, of IFA Promotion, says that means about 5 million people are paying unnecessary tax on their investments.His organisation, which encourages people to take independent financial advice, calculates that this tax bill amounts to pounds 860m a year, most of which could be saved with some careful planning.The taxman is not the only one who wants to contribute to making your money grow with a personal equity plan; such is the fierce competition that some PEP managers and intermediaries are now not merely cutting charges but in some cases actually offering cashbacks to attract investors.Like most tax savers, the Inland Revenue imposes limits on the amount of money you can invest in your personal equity plan and on the kinds of investment that it can shelter.Full details of the rules are given on page 18 but in a nutshell this is what you need to know. You can put pounds 6,000 in any tax year into a personal equity plan, plus a further pounds 3,000 into a single-company PEP, a plan that holds shares in one company only. So assuming that you have not started a PEP since 5 April last year you could invest a total of pounds 18,000 during 1997, half in the present tax year and half in the next.With the election looming and uncertainty about what the result could mean for personal savings and investment, the fund managers (that means stockbrokers and others) are gearing up for a rush of business over the coming months.Should you join them? The best advice must be: do not rush in and do not be seduced by the prospect of saving tax with a plan that may not meet your long-term needs.As with any investment, it pays to do your homework first.

Ask yourself the questions in the feature on the opposite page, read through this, and then send for information from some of the organisations included in these pages.If you are comfortable making your own investment decisions, you may be happy to pick up the telephone and buy direct as an increasing number of people do.But if you are uncertain, or your financial affairs are complex, you may prefer to get independent advice. Types of personal equity planAt the last count there were more than 400 different organisations managing more than 1,000 different personal equity plans. Most of these fall into two or three broad categories.Active management PEPsYour money goes into a unit or investment trust that researches in detail which shares to buy, sell and hold to meet stated investment objectives.Tracker fund PEPsIndex trackers are now the fastest-growing type of PEP. Your money goes into a unit trust that tracks the performance of a stock market index such as the FT-SE 100. The combination of savings on research, lower dealing costs and fierce competition keeps charges low. Performance often matches, or even betters, actively managed funds.Single-company PEPsPlans that hold shares in one company only, often for shares obtained through employee share schemes, and sometimes known as corporate PEPs. The many Abbey National members who became shareholders in the conversion from building society to bank have their holdings in Abbey's corporate PEP and we can expect to see similar arrangements for the other societies.

You can put up to pounds 3,000 in a single-company PEP in addition to the pounds 6,000 in an ordinary, or general, PEP. An exception may be made for larger share values coming from the new wave of building society de-mutualisations.Corporate bond PEPsThese are generally the lowest-risk PEPs, and are marketed as an alternative to building society savings accounts. Your money is invested in bonds - loan notes - issued by leading companies, which carry regular interest payments and are usually secured on the assets. Some bond PEPs offer guaranteed returns.Self-select PEPsThis embraces both the luxury and the low-cost. Stockbrokers use a personal equity plan to shelter your personal share stakes and other investments from the taxman. For those who make their own investment decisions, execution- only self-select are available at very low cost.. Should you have a PEP? As so often with personal finance, the answer is that it all depends on your circumstances.

Before making your decision, answer the following key questions. Do you expect to pay income tax - at least at the standard rate - for the next five years or more?If not, stop right here. Since the whole point of a PEP is that it is a tax-saving "wrapper" for an underlying investment, there's not much point in having one if you don't pay tax. Any other form of unit or investment trust is suitable, from the tax point of view.Do you have any cash put away for a rainy day?Because a PEP is a long-term investment, it should not be used as a source of emergency funds. If you needed cash in a hurry, and had to sell out of your PEP, it could mean selling at a loss. Cash for a rainy day belongs in a savings account.A good tip is to add up your total monthly outgoings - housekeeping, rent or mortgage payments and all your other bills - and then double the total.