Investment Bonds

Single premium investment bonds allow an investor to place money into broad investment where tax is incurred at a favourable rate and is taxed to the life office rather than the individual investor, until the bond is either encashed in part or whole. The investment powers of the insurance companies tend to be wide allowing a mix of cash, property and equities as well as fixed interest investments. In addition with profit policies can be obtained in order to smooth the eventual returns received and ensure greater consistency in the overall performance.

Within the bond there is no distinction between income and capital, an income of up to 5% of the original capital may be withdrawn annually without any tax liability to basic rate taxpayers. Investment Bonds will not be suited to all investors however they can offer advantages for some taxpayers and, with certain contracts, those seeking a guaranteed or secure return.

Investment Trusts

The term “investment trust” is a misnomer as investment trusts are in fact companies formed with the aim of managing a portfolio of investments. Investors buy and sell shares in the investment trust company. They have greater freedom than unit trusts as to borrow money however the construction of the investment portfolio means that the value of falls could be exaggerated depending upon the amount of borrowing that needs to be paid.

Investment trust investment generally incurs a slightly higher risk than other investments of their type and therefore should be aimed primarily at those who are already investing in other areas.

Unit Trusts

Saving by Unit Trust enables small as well as large savings to be placed into a professionally managed portfolio of equities and all fixed interest investments. Each investor is allocated units in the Trust and each unit represents an equal share of the whole portfolio. Investors buy and sell units through the manager and by buying and selling each day there is a direct link between the price of each unit and the value of the underlying fund.

There are a large number of Unit Trusts on offer from a range of Unit Trust Managers, a number of which can be brought by way of Individual Savings Account. Depending upon the investment objectives of the investor, income, capital growth or a balance can be achieved and investment in some small yet volatile markets can also be obtained. Capital gains tax is not levied on profits realised within the Unit Trust, which means that a performance advantage can be obtained over directly held investments. However income tax may well be payable depending upon the individuals and tax position.

Again Unit Trusts are generally for the slightly more adventurous investor and should be viewed together with other investment opportunities on that basis.

Open Ended Investment Companies

OEIC’s, as they are known, have been familiar in continental Europe and Off shore for some time. They are now permitted in the UK and a number of unit trusts have been converted into OEIC’s.

Basically an OEIC is an investment company where shares can be created or cancelled to match demand, in a way similar to the units in a unit trust. The principle difference however lies in the fact that there is a single price to which is added the initial charge for purchase. There is no difference between the buying and selling price, which has been traditional in UK investment. The argument in favour of OEIC’s is their simplicity whereas in reality charges are likely to be as high as that for a unit trust.