There has been a lot of coverage in the media lately about the launch of the Euro and the setting up of a central European Bank although it could be several years before UK actually joins. In the longer term it could mean cheaper mortgages as their interest rates are below ours, but until the time we get paid in Euros, if you want to link your loan to European rates you run the risk of currency changes which could see the amount of loan going up or down. These have been around for years and some people got their fingers burned when Britain came out of the Exchange Rate Mechanism.

With interest rates heading down, the latest five year tax free fixed issue from the National Savings is offering just 3.5 per cent - people requiring income from their capital are looking at other options apart from cash, and building up savings over time is important. To get capital growth, many investors turn to equity based products such as unit trusts, and with the deadline for the last round of PEPs fast approaching, millions of pounds are likely to be taken over the coming weeks.

For the average investor, the majority of this money goes into funds linked to the UK stock market only and while this has produced excellent results over the years, it limits the diversity of the investments. If you are seriously looking at investing for growth, you should also be looking further afield and Europe is an obvious choice. The prospects in the long-term are good and, with ever increasing unity, should remain so. In a recent survey of leading PEP funds the top performers over the last five years have generally been European funds rather than exclusively UK ones (though past performance is no guide to the future).

The last few months have certainly seen some quite dramatic swings in the various stock markets of the world which has put a lot of investors off using up their PEP allowance. But it must be remembered that when you are investing for capital growth you have to take a medium to long term view and you should be prepared to ride out short term fluctuations. It is never a good idea to sell at the bottom of a market slide.

Many investors are wary of putting money into overseas funds and those who have had money in the Far East have seen big losses lately. However, Europe is a pretty stable trading arena and would be a sensible first step for those venturing out of normal UK funds. It gives more diversity to your portfolio and should give the potential for some excellent capital growth.

If you are thinking about using up your last PEP allowance before the end of the tax year, do it now, not at the last minute, as there are a huge variety of fund managers and types of fund to choose from. An independent financial adviser can help you select one that suits your needs.

l For a free Performance table of the top European PEP funds ring (01484) 860123.

Alan Mills is an independent financial adviser with A. J. Mills Independent Financial Advisers, a member of DBS Financial Management PLC, which is regulated by the Personal Investment Authority. Not all contracts of PHI are regulated by the PIA. Answers given are for general guidance only and specific advice should be taken before acting on any of the suggestions made. All information is based on our understanding of current tax practices which are subject to change. The value of shares and investments can go down as well as up.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.