Distribution bonds - the best of both worlds?

Distribution bonds are intended to provide income with minimal affects on your original investment. They attempt to ensure that any tax-free payout - up to 5% and usually in the form of dividends - don't gorge too greatly on your original investment, thereby giving it a good chance to grow in the long-term. They also combine two different asset classes - equities and bonds - inside one investment wrapper.

 

Distribution bonds tend to have a higher amount invested in UK equities - up to 60 percent in some cases - than other types of bonds, so they may be riskier. Nevertheless, distribution bonds normally have a strong income flow to them from reliable investments to bolster their security. A large dollop of equities to their overall investment mix means that long term growth potential is boosted. The minimum investment amount in a distribution bond is usually £5,000, but if you want regular income payments then you may have to invest £10,000 or more (there's no limit to the overall amount you can invest). Depending on how well the bond performs, income from distribution bonds will fluctuate, though hopefully this shouldn't be great. For tax purposes, withdrawals can be deferred for up to 20 years. See our tax guide for more information.

Like some other bond investments, early redemption penalties can apply, so do read the small print. Distribution bonds are very much long-term investments, due to their large equity make-up, and should be treated as such.

Investments.co.uk is one of the most comprehensive financial services websites. You can also visit us at www.mortgages.co.uk to make sure you are not paying too much for your mortgage.

 

UK Investments - Financial, Property & Other Investments - 1998-2008

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