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What is a Bond?
A bond aims to build up value for someone looking for capital growth and income generation or a combination. |
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What is a With Profits Bond?
With Profits Bonds offer a low-risk investment over the medium to long term. This type of bond is the next step up from the cash and emergency portfolio base. |
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How do they work?
With Profits Bonds are generally offered by large insurance companies who have expertise in managing monies. Instead of your money being linked directly to the stockmarket, the company will declare a bonus rate each year and it is held for that year. This allows you to peg into a stable return, although bonus rates can vary and are not guaranteed.A terminal bonus may be added when you make withdrawals. Once the annual bonus on a With Profits Bond has been declared it cannot be withdrawn, thus making capital more stable than it would be in a direct stockmarket investment environment. However, companies offering With-Profit Bond investments reserve the right to penalise if you encash when investment conditions are very poor. This is called the Market Value Adjustment (MVA). |
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What are the charges?
Like most investments there are charges associated with a With Profits Bond and these vary from company to company. Early encashment is not advisable as surrender penalties may apply. |
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How flexible are they?
Investment switches may be allowed from the With Profits fund to other unitised funds, usually without charge. Unit prices are not guaranteed. If you wish to take income from the bond it is very flexible, usually being available monthly, quarterly and annually. There are valuable tax advantages to a With-Profits Bond, particularly for higher rate tax payers and those with age allowances to be able to make withdrawals of up to 5% per annum free of income tax for up to 20 years. Care must be taken, however, not to erode the underlying capital by electing for a higher rate of income withdrawal than the bonus rate applied. If you are looking to achieve some capital growth in addition to income then the amount withdrawn per annum should not exceed the amount generated through the annual bonus rate. |
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| MCCB and PIA regulated |
Mortgage Focus is a trading style of focuswell.com, which is regulated by the
Mortgage Code Compliance Board
and the
Personal Investment Authority. |
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