Investment Types - Managed Bonds
Managed Bonds
Investments  >  Types   >  Bonds   >  Managed Bonds

Managed Bonds

Investment bonds, including managed bonds, allow you to invest a lump sum with an insurance company. You get a little bit of life cover, but the rest is invested.  The life element makes the bond an insurance policy with distinct tax rules. They allow you to withdraw 5% of your investment each year with no immediate tax liability. You will be offered different investment profiles to suit your attitude to risk,  with defensive, moderate risk, or higher risk fund choices. They are mostly sold by life companies.

Medium to Long Term

The investment timescale is intended to be medium to long term, and there will probably be a minimum investment of £5,000 or even £10,000. 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. Your tax liability could be deferred for up to 20 years. If you don’t use your full 5% allowance in a particular policy year, you can carry it forward, until you have used up the whole allowance. 

Withdrawals

These bonds should not be considered for cash you might need within five years, because withdrawing more than the annual 5% limit triggers a tax liability and could also mean hefty penalty charges.

If you are looking to draw down income from an investment bond, a distribution bond may be a more suitable choice.  Expatriates can choose similar bonds - aimed specifically at them - called offshore bonds.

Like other insurance-backed bonds, the life insurance element msean that the value of the bond is paid out should the bondholder die.

Charges

Management charges can take away 1% or more of your fund's value every year. Your investment may also attract an initial charge of up to 5%. Such charges can make a serious dent in your investment and need to be factored into your considerations. Investment returns aren’t guaranteed, and the higher the charges the harder your bond has to work. You may decide that a stocks and shares Isa, with its tax incentives, is a better alternative - this gives you access to the same or similar funds offered through bonds and it might also work out cheaper if you buy through a discount broker or fund platform.

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