What are Investment Bonds?

The finance industry is full of jargon, so the following are some commonly used terms to describe the types of Bonds that are available as investment vehicles.

Generally bonds are referred to as one of the four asset classes (shares, property and cash being the other three) that make up an investment.

Whilst the Financial Services Authority (FSA) distinguishes bonds as an asset class of the fixed interest security type (eg Gilts and Corporate Bonds) it recognises an investment bond as being a single premium life assurance bond or policy.

These are not fixed interest securities in themselves, but an investment bond may invest into a fixed interest security.

Also, unlike Regular Premium Savings where regular contributions or premiums are paid into a savings vehicle (such as endowment policies), investment bonds are lump sum life assurance bonds.

 

What are the types of Single Premium Life Assurance Investment Bonds?

Investments bonds are a form of saving for the future. Typically they will include:-

  • Guaranteed income bonds
  • High income bonds
  • Guaranteed growth bonds
  • Unit linked bonds
  • Distribution bonds
  • Guaranteed/protected equity bonds
  • With-profit bond

Additionally investment bonds are often used as investments for trustees to provide long term capital growth.

Also investment bonds are available as Offshore Bonds.

 

Why should I invest in an Investment Bond?

The major reasons for recommending an investment bond is the availability of a variety of different funds within it including direct holdings of commercial property which are not available as any other collective investments such as Unit Trusts or Investment Trusts. 

Additionally under current rules upto 5% of the original investment amount can be withdrawn annually by the investor without an immediate tax charge, also making it potentially attractive to higher rate tax payers who may be lower rate tax payers in the future eg on reaching retirement age when the policy matures.

Nevertheless, as income and capital gains tax have already been paid at the basic rate on the underlying funds, non tax payers cannot reclaim the tax generally making it an unsuitable investment for non earners. The investor’s personal taxation of any chargeable gains and fund charges applicable which are specific to the type of investment bond must be considered, together with their historical and expected performance of the funds (return on investment) on maturity and the implications of early encashment or fund transfers.

 

How do I take out an Investment Bond?

The first and most important step after you have decided you may want to take out an investment bond is to have a discussion with us to provide you with independent financial advice.

Once we have agreed what the most suitable type of investment bond is for your particular circumstances we make an application on your behalf to pay a single premium into selected funds based on how much you can afford your personal tax situation and the amount of fund required at maturity, at the acceptable level of risk you are prepared to take to match your needs.

 

Want to know more?

Talk to one of our qualified financial advisers on 01553 777600 or e-mail us at enquiries@ringassociates.co.uk

Also you may want to read the articles and associated links from the Financial Services Authority by accessing the following website at http://www.moneymadeclear.fsa.gov.uk/products/investments/types/pooled/life_assurance_investments.html

and

http://www.moneymadeclear.fsa.gov.uk/products/investments/types/asset_classes/bonds.html