Capital Investment Bonds

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Capital Investment Bonds

If you like the idea of stock market exposure but shy away from the risk, then a capital investment bond could be an option.

What is a capital investment bond?

Basically, a capital investment bond usually means an investor stands to make a profit from any stock market upturn, but their capital is protected should stock market prices fall.

Where the risk element comes in is with the denial of any interest paid on the investment, should the investment fall flat during its investment term.

No maximum limits

There are no maximum limits to invest, but barriers to entry can start higher than other bonds, with a £10,000 entry point being not untypical. However, the term of the holding can be a lot less, with some investment durations starting from just three months

. In a low interest environment and an uncertain stock market, capital investment bonds certainly have their place. Drawing down income from a capital investment bond can be an option, though obviously any income drawn down will deplete the original capital. You may well - depending on the policy - be able to make additional payments to the bond at any time, as well as one-off withdrawals.

Life insurance

Like other insurance-backed bonds, a life insurance element should mean that the value of the bond is paid out should the bondholder die (though do make sure all relevant parties are covered).

Charges to the running of capital investment bonds can also attract up to one percent or more of the value of your fund's value; an investment may also attract an initial charge of up to five percent of the total value of an investment. Such charges can make a serious dent in your investment, and these charges should be weighed carefully.

• Also see our tax guide for comprehensive details of tax on income and gains from investment bonds.