less INCOME - more GAIN

sneekymum

stolen from http://www.allmoneymatters.org.uk/investments/investment-bond/

"A unit linked investment bond is an insurance company bond which invests in the units of a particular fund. These funds can vary in asset type quite considerably from 100% equities to 100% property or corporate bond or a split of all asset types.

HOW DO UNIT LINKED BONDS ACTAULLY WORK?

Your single premium buys the units in a unit linked fund or funds. These funds are invested in underlying assets as mentioned above. The value of these assets are valued on a daily basis and depending on the increase or decrease in the value of these assets the unit price will rise or fall and therefore the value of your bond will rise or fall.

You can tailor unit linked bonds to suit your attitude to investment risk by placing differing amounts into the different asset classes or not as per your attitude to investing.

You are also able to switch to other funds available through the provider if your attitude to investments changes in the future.

You should look to purchase bonds from companies who:

have good historic fund performance.

will enhance the allocation.

have a competitive charging structure.

have good service levels.

have excellent access to external fund managers.

allow withdrawals.

have switching facilities to a wide range of unit linked funds.

Also under this heading could be with profit bonds also provided by insurance companies.

A with profit bond will provide you with the strength and stability of a with profits fund. In the long term, the bond should provide a higher return than investing in a bank or building society deposit account. However, this is not guaranteed and the current bonus rates may not be maintained. These bonds work by attracting periodic bonuses. Once a bonus has been declared, it cannot be withdrawn.

With profit bonds have been around for over 22 years and two features that make them particularly attractive:

1.They offer the potential for long term growth at relatively low risk compared with, say, unit trusts or unit linked bonds.(although they are higher risk than bank and building society accounts).

2.Because of the way that they are structured (as lump sum whole of life policies) the Inland Revenue allows investors to take up to 5% of the capital as income each year for up to 20 years without an immediate tax liability "



"will enhance the allocation." - does anyone know what this means??

16:40 added..... Also - the way this text is structured it seem to imply that its only the "with-profits" bonds that allow a 5% capital withdrawal. Not that that was a feature which was particularly important to us - but I want to understand.

dunstonh

Some providers will give an increased allocation at the start. So, for example, I gave someone a 107% allocation a few weeks back. This meant, on 100k, their bond was immediatly valued at £7000 more than they paid in. This was made up of part insurance company offer and commission gifting.

It shouldnt be looked at in isolation though. Some of the highest allocation bonds have the highest AMCs. Some with lower allocations have lower AMCs. There is one provider than can give a massive allocation rate but they basically take it all back, plus more.

16:40 added..... Also - the way this text is structured it seem to imply that its only the "with-profits" bonds that allow a 5% capital withdrawal. Not that that was a feature which was particularly important to us - but I want to understand.

Nope, the withdrawal allowance applies to all investment bond funds. With the with profit funds, that percentage also tends to apply to the MVR allowance. Hence why it may be emphasised with them.

EdInvestor

"Enhanced allocation" means more money is invested upfront.

"Have a competitive charging structure" is the area of concern with investment bonds, as well as penalties for early encashment.

Very important to read the small print with these products, especially noting the reduction in yield from the charges.

A study of the deals offered by all the discount broker/IFAs like HL,Cavendish,Chartwell etc might be productive.


https://www.fsa.gov.uk/tables
could be helpful on the charges issue.

dunstonh

Disregard the fsa tables to some extent. They are not accurate and assume default funds and standard terms. Special offers and IFA enhancements will alter those significantly.

I posted some months back how, for example, the NU property fund was over £20k cheaper on a bond with full commission taken compared with getting the fund on a unit trust with any of the fund supermarkets with nil commission. (when investing 100k over 10 years).

The investment bonds of 5 years ago are not comparable to modern version bonds. That doesnt mean that there are still providers out there offering bonds on old fashioned terms so like any area, you do need to be careful.

Reduction in yield is very important but you will probably find, that with the better providers, the terms are better than on unit trusts on a like for like basis. This is a complete reverse of the situation as it used to be.

EdInvestor

When talking about funds that pay no income, the words "special" and "situations" often come to mind.

You might like to look at the list of growth funds, sneekymum, quite a bit of dross here, but some may be of interest:

Trustnet

Always go through the discount brokers of course.

Needless to say, this is not advice.

Richie(UK)

robnye wrote:

i believe you can open isa's in your childrens names..... but check the info at your local building society.

Just to clarify, this will depend upon the ages of the children concerned. Originally ISAs were only available to individuals aged 18 and over. However, I understand that now it is possible for 16 to 18 year olds to have a cash mini-ISA.

HTH

Edit : Just checked at the Revenue's site and can confirm that the above is correct. See here.