Managed funds are investments integrated into the life insurance company’s funds; this allows them to be less unstable than other bonds you can purchase.
In the case of insurance bonds such as managed funds, you are investing with the backup of the expert counsel of the life Company’s managers. This affords a minimal risk as opposed to other bond types.
There are certain types of funds that will set off charges on annual bonuses, while others will not, this is why it is advisable to compare before purchasing.
There may be other providers that charge you by not investing the whole of the amount placed into the fund and this is known as allocation rate.
Nearly all managed funds with equity will charge a commission for the value of the market adjustment known as MVA.
This is to play safely in cases when the underlying assets of the fund are depressed when the stock market falls. The commission will protect the interests of the investors that remain after the fall.
It is rare to see the application of an MVA but to avoid it happening to you, it is wise to ensure that you can be flexible in the timing of your withdrawal so that you can defer it until the MVA is removed.
Profit bonds are more conventional forms of managed funds. The main difference is that the value of the fund is less likely to fall because annual bonuses are declared but some growth is retained to smooth out returns and pay for terminal bonuses.
Profits bonds are becoming a popular form of investment, especially with retired people, probably because of their steadiness in growth, despite the disadvantage of not knowing in advance what the terminal bonus will be.
However, recently the bonus rates have gone down and they may not be as popular as they were before.
Investment bonds are like profit bonds with the difference that they are unit-linked, this means there is no smoothing involved and renders them more unstable. The income is usually left in for the aim is to have the capital grow.
There are companies that allow different types of investments within the same company and when you need to make a transfer between bonds you do not have to pay any accumulated capital gains tax.
Sometimes investment bonds are used as long term investments by grandparents for their grandchildren.
Distribution bonds are also like investment bonds with the exception that the aim is income.
This means that all the income from the underlying investments is paid out, while the capital value is maintained. They are popular with retired people.
Some bonds are set up to pay a guaranteed income over a period, perhaps five years, or achieve a guaranteed growth, dependent upon certain criteria being met.
The comments above regarding guarantees are important and it should be remembered that higher interest can only be achieved by taking greater risk.