| Managed funds | | | | form of investment, particularly with retired |
| Investments are in a mixture of the life | | | | people, probably because of their steadiness in |
| company's funds. Because of this, performance is | | | | growth, despite the disadvantage of not knowing |
| less volatile than other types of funds. | | | | in advance what the terminal bonus will be. |
| You are in effect using the expertise of the life | | | | On the negative side, in recent years there has |
| Company's managers to choose a mixture which | | | | been a downward trend in bonus rates. |
| achieves good returns at lower risk. | | | | Investment bonds |
| Some funds set off charges against annual | | | | These are similar to with profits bonds except |
| bonuses, others do not, so it is necessary to take | | | | that they are unit linked, so there is no smoothing. |
| this into account when comparing. Some providers | | | | This makes them more volatile. |
| also charge by investing less than 100% of the | | | | As for with profits bonds, the income is normally |
| amount put in; this is called the allocation rate. | | | | left in, as the objective is growth. |
| Advisers get a commission - try for a rebate. | | | | Some companies permit investment in a number |
| Market value adjustment | | | | of their funds, making the bond into a wrapper |
| Most managed funds with an equity involvement | | | | like an ISA. Transfers between funds within the |
| carry a provision for a market value adjustment | | | | bond do not create a necessity to pay any |
| (MVA) in case the underlying assets of the fund | | | | accumulated capital gains tax at that point as they |
| are severely depressed at the time of an | | | | would outside it this is a deferral of tax. |
| individual withdrawal due to a considerable fall in | | | | Investment bonds are sometimes used as long |
| the stock market. This is in order to protect the | | | | term investments for children and grandchildren. |
| interests of the remaining investors. | | | | Distribution bonds |
| The application of an MVA is a rare event but to | | | | These are similar to investment bonds except |
| avoid it happening to you, it is wise to ensure that | | | | that the objective is income, so all the income |
| you can be flexible in the timing of your | | | | from the underlying investments is paid out, while |
| withdrawal so that you can defer it until the MVA | | | | the capital value is maintained. They are popular |
| is removed. | | | | with retired people. |
| With profits bonds | | | | Guaranteed equity bonds |
| These are a more conservative form of | | | | Some bonds are set up to pay a guaranteed |
| managed fund. The difference is that the value of | | | | income over a period, perhaps five years, or |
| the fund is unlikely to fall because annual bonuses | | | | achieve a guaranteed growth, dependent upon |
| (also called reversionary bonuses) are declared but | | | | certain criteria being met. The comments above |
| some growth is retained to smooth out returns | | | | regarding guarantees are important and it should |
| and pay for terminal bonuses (payable on | | | | be remembered that higher interest can only be |
| terminating the investment). | | | | achieved by taking greater risk. |
| With profits bonds have become a very popular | | | | |