INVESTMENT clubs are booming. Thousands of investors are joining small groups of like-minded people to pool their enthusiasm, willingness to learn, expertise - and their money - in order to play the stock market.

Starting a club is easy, participating can be fun and there is the potential to make healthy profits. All you need is a handful of friends or colleagues, an agreed set of rules and procedures and a regular contribution to a central kitty, which is used to buy shares. Decisions about what to buy and sell are made collectively.

Clubs - which can be any size up to about 15 or 20 people - typically meet once a month, with members chipping in, say, £25 or £50 each time. An initial lump-sum contribution of perhaps £100 can also be made to provide launch capital.

Some clubs hold their gatherings in a favourite pub or over a meal at a restaurant. Others meet in a member's house.

How do you set up an investment club? ProShare, which is funded by the Stock Exchange and corporate donations, publishes a useful Investment Club Manual which includes a suggested constitution.

Jeremy King, head of investor relations at ProShare, says: "We offer a template that clubs can use so that they are equipped to deal with all eventualities. You've got to have rules because it's all about money."

Proshare has helped to establish about 5,000 clubs - with 150 new clubs being formed each month. "Members come from all walks of life. The most common amount contributed is £25 per member per month. If that doesn't sound a lot, the average portfolio size for clubs formed over two years ago is more than £30,000."

A personal finance website called, The Motley Fool (www.fool. co.uk) runs message boards for investment clubs where individuals can share information and discuss their experiences. The site also carries details on how to set up and run a club. David Berger of The Motley Fool says the assets managed by investment clubs are set to grow from £43m today to £500m by 2004.

Getting started: you should elect a chairman, secretary and treasurer and choose a stockbroker. Many have dedicated services for investment clubs and commission starts at £15 per trade. Members should also pay their monthly subs into a club bank account via standing order.

The ProShare manual also provides help with the technical aspects of share ownership, accounting and taxation. It also sets out how to divide the assets if a member leaves.

Democracy is at the heart of the investment club concept. Some clubs require everyone to be in agreement; others stipulate that a simple majority is adequate.

Is it worth it? ProShare's most successful investment club of 1998, the Sartis Investment Club from Nottingham, turned in a profit of 75% on its investments in one year. In the 12 months to May 1999, the average club made 9.8% profit.

Clubs which had been going for between one and two years made an average of 10.4%, while clubs over two years old made an average of 13.6%.

According to King, all clubs tend to improve with age: "The figures illustrate that people learn as they go along, with more experienced clubs making the biggest profits. However, it is also true that new clubs are easily beating bank and building society rates."

Invest what you can afford: members should not overcommit themselves financially. Remember, it is the combined contribution that matters. If 15 members put in £20 a month, that is £3,600 a year.

Ride the rollercoaster: share prices go up and down so think carefully before taking profits or selling what looks like a loser. Each trade through a stockbroker costs money.

Research for reward: stock market professionals make their money by researching the market to identify the companies with the best potential. Clubs can do the same, perhaps exploiting the experience and expertise of members in particular industries or areas of interest.

Spread your bets: clubs should try to build a diversified portfolio. In the early stages, when there is not much money in the pot, it may be practical only to hold two or three shares. But over time, a greater number of holdings should be acquired to minimise the danger of losing too great a portion of the total investment in one go.

Take some risks: remember that a club is a social gathering. Nobody should invest more than they can afford to lose, because the club might make speculative investments.