Until the Government hinted about tax rises recently, life looked grim for financial advisers trying to persuade savers to invest in tax-free funds.

While stock markets have fallen, the idea of putting money in a tax-free haven like an individual savings account (ISA) before the financial year ends on April 5 is starting to look attractive again.

Anybody over 18 can put £7,000 into an ISA in one financial year but doesn't have to put all the money into equities or shares.

You can put £3,000 into a mini cash ISA with a bank, building society or National Savings, £1,000 into an insurance company bond and the remainder into stocks and shares. Only those with strong nerves will put £7,000 into a shares maxi-ISA.

The middle option, with a risk profile midway between cash and shares, is corporate bonds. Issued by large companies as a way of raising finance, they can be included in an ISA wrapper to generate steady tax-free income.

Property bonds invested in commercial properties - shops, offices and industrial premises - are also being offered by financial advisers this year for investors still shell-shocked by falls on the stock market.

A new hybrid for the cautious is a mixed product like the Jupiter Distribution Fund, where 65 per cent of the money goes into corporate bonds and fixed-interest securities with investors entitled to reclaim the 20 per cent tax credit.

The rest goes into shares where investors lose tax relief on dividend income after 2004.

Anybody with £3,000 sitting in a building society, which is unlikely to be needed soon, could switch the money into a mini cash ISA. The return has to be better because interest is tax-free.

The Halifax reckons there could be up to nine million savers who have so far neglected to use their ISA allowance in the 2001/2 tax year.

They could be writing off potential tax savings worth more than £200 million and missing the chance to build a savings pot beyond the tax net.

Initial ISA charges can be as high as five per cent, with ongoing management fees possibly 1.5 per cent a year.

How many ISA investors from previous years in highly- regarded blue chip firms like Rolls-Royce, BT and Cable and Wireless or in managed funds which had looked promising are wondering why they bothered?

As markets have fallen, so has savers' interest in tax-free shelters for investment. In 1999, ISAs and personal equity plans (PEPs), the Tory version of the same thing, hauled in £13 billion. In 2000, it was £11.7 billion and last year only £8 billion. The figure is likely to go lower, unless markets surge against expectation later in the year.

But how do investors find the right product? The old method of investing in hot sectors worked until the technology bubble of March 2000 exploded and nobody has since devised a more efficient system.

According to Charcol, a leading independent mortgage and financial adviser, only 17 per cent of investors will seek independent advice in choosing an ISA. Many ask their bank or building society.

Wayne Gibbs, of Charcol's Brighton office, said: "Don't just take whatever happens to be available from the bank, particularly when the gap between the worst and best equity ISA fund charges is so pronounced.

"Shop around for investments with the lowest charges, and seek advice on the most suitable investments based on personal attitude to risk either online or with a financial adviser."

Initial charges are being slashed this year to boost sales. Invesco Perpetual, for instance, offers a two per cent discount on initial charges until further notice.

Invesco also offers a phased investment option - ISA money invested before April 5 is drip-fed into shares later when prospects look better.

Initial discounts sound attractive, but Egg spokesman Rob Hudson says ongoing fees and management charges are more relevant in the longer- term. Egg says the total expense ratio varies from one to 2.5 per cent on most UK funds. It sounds a small amount but generates fees running into thousands of pounds if £7,000 stays invested over 20 years.

The investment scene this month is clouded by doubts and overshadowed by the war on terrorism. Right now, these are probably the golden rules for ISA investors:

Use the mini cash ISA allowance to put £3,000 clear of the taxman.

Choose a mainstream corporate bond ISA fund for safe and steady income.

Only choose an equity ISA if you feel confident about a particular sector.

To squeeze costs, try to invest through fund supermarkets, like fundsnetwork. co.uk run by Fidelity Investments.

If in any doubt, stay away from stock markets. In the medium-term, few investors will make enough profit to be hit by capital gains tax anyway.