FEAR OF FINANCE

If your last investment venture left you clutching a mighty hangover then now may be the time to move into something more liquid and more tasty: wine. A Chateaux PEP could be far more fun than getting giddy over gilts and bonds.

Wine is negotiable currency worldwide and you don't need to be an oenologist to appreciate why splashing out some money for a case or two might not be such a bad thing. For the private wine buyer there is no income tax or capital gains tax to be paid on the profit and your liability is only on the purchase price, not on market value.

The weather is one of the main reasons why wine could be a wise money maker at the moment. During the 1980s the weather was kind to the vines and the decade produced four top vintages, pushing market values down. But since the start of the 1990s the weather has been poor, forcing prices of the good vintages up again.

The market is bullish and prices are looking up. To the end of March the wine market rose 11.4 per cent and some French reds even doubled in price in 1994. According to Michael Davey chairman of Croxtons, which runs a managed Bordeaux wine investment plan, if you spent pounds 10,000 on some good quality wine in 1975, that investment could now reap you around pounds 150,000. In the last two years the company has sold pounds 40m worth of wine through its Bordeaux wine investment plan.

If this sounds too good to be true, there are rules to follow and risks to note. Investing in wine is speculative, rather like property or fine art. But compare a pounds 10,000 wine investment with the same investment in shares between 1975 and 1995. With wine you would realise an average of around pounds 102,630; in Chinese porcelain, considered the next best for returns, you would net pounds 93,390. At the bottom of the market, diamonds, certainly not a girl's best friend at the moment, would only return you pounds 18,500.

This is not about a Chianti, or a clever little fruity white at pounds 4.99, so if you know what you like to drink but are not an expert choose an adviser carefully - a good track record is no guarantee of future success. A decent investment demands top vintages of a particular type. The top 25 Bordeaux chateaux are most popular as they are easily identifiable and carry price records over 200 years.

As an investor there are two things you need to decide: how much to invest and for how long. A wine portfolio should be a mature investment. A good 1990 wine would not be drinkable until 2003. For the short term, such as five years, you need to balance your choice of wine according to how much you can make and what it is you might want to drink. The minimum worthwhile punt would be around pounds 5,000, although you could go as low as pounds 2,500.

With Caxtons managed wine investment plan there is no annual management fee and once you have bought your wine, you will receive regular price updates on the wines you hold.

What you don't do is buy the wine and stick it your cellar, occasionally lifting out a bottle or two to check if it's OK. Your investment will be shipped off to a bonded warehouse for which you will pay 1.5-2 per cent a year to cover insurance and housing. The warehouse sends you a certificate of what is being held.

Any market which is prey to the vagaries of the weather needs to be approached with extreme caution, which is why wines from Bordeaux are the usual currency. Bordeaux is traditionally France's classiest wine-producing area.

You need to bear in mind that there is no quality control for wine but a Bordeaux Index run by Decanter magazine will allow you to monitor your investment. This currently stands at 674.02 having opened at 100 in August 1978 and reflects a great cross-section of Bordeaux wines.

You also need to note that as you actually own the wine it is not covered by the Financial Services Act and there is no compensation fund. Neither is wine as easy to sell as it is to buy, but wise initial selection should reap dividends.

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