There are several ways in which to invest in quoted stocks and shares, whether direct or through some form of collective investment scheme. Some holdings may be sheltered from tax within an Individual Savings Account, but the annual ISA limits may not be sufficient where larger amounts are involved. Many unit trust or open-ended investment company plans are available, for investment in UK companies or on a global basis. Investors may usually opt to receive regular dividend distributions or to reinvest the income to help the value of their holding to rise.
For many investors who do not require a regular (and often taxable) income stream from at least a part of their capital, there is another form of collective investment with additional features that may help with tax planning. This is the investment bond, an investment vehicle offered by many well-known insurance companies. Your professional adviser has knowledge of the features of investment bonds and will explain these fully on request.
Like many other collective schemes, an investment bond can offer a good spread of risk through a wide choice of funds, from index trackers to themed or geographically focused variants. There may even be the facility to switch funds periodically after the bond has been issued, perhaps to take account of market conditions, changes in personal circumstances or a desire to reduce any risk of diminished value in the run-up to a planned encashment date.
The technical difference that makes an investment bond different from other forms of collective investment is its status as a single-premium life insurance policy. Although the life insurance element is usually small and thus most of the lump sum subscribed goes into the chosen investment fund or funds, the investment bond still has a particular advantage: income tax liability is deferred from the year in which dividends accrue until any gains are calculated at a later stage.
When someone buys an investment bond, their money is used to buy units in the chosen fund or funds. Minimum investment levels are usually in the low thousands, but may be higher with some providers. The aim is to achieve capital growth over the medium to long term although, unless you opt for a with-profits bond designed to iron out the ups and downs, unit values will fluctuate in line with the underlying investments.
Despite the absence of income from an investment bond, the money invested and the accruing dividend payments do not have to remain locked in. It is often possible to make withdrawals, although in some cases an early encashment charge may apply. We will be able to point you to funds with the investment objectives, risk characteristics and conditions that suit you.
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.