With-profit funds have always been the shire horses of the investment world: not the most exciting creatures in the world, but big and steady and always pulling their weight, even when (in the early 1990s) those around them were shrinking to nothing but skin and bone. Which is probably why Canada Life has brought out a with-profits fund, albeit a unitised one, for lump sum investors with at least £5,000.
Canada Life's new bond is a unitised with-profit bond in which you choose the period between five and 15 years for which you are prepared to leave your money which purchases "units" in the Canada Life Unitised With Profits Investment Fund. The underlying assets include shares in public companies, government stocks and bonds and other fixed-interest assets like cash. An annual bonus is declared (guaranteed to be 6.5 per cent in year one) which relates to the performance of the assets and is locked in and cannot be taken away.
At the end of the agreed term, you may receive a final, or terminal bonus. Your capital is also guaranteed so long as you hold onto it for the agreed investment term. Encashing early puts your capital at risk.
An automatic 5 per cent bid offer charge applies for sums of less than £10,000 in this bond but the charges are lower for sums over £10,000 and for longer investment terms. For example, a £9,999 investment will result in a 5 per cent charge, regardless of how long you leave the money with Canada Life. But if you invest £25,000 in the bond for between five and nine years you will only pay 3 per cent in charges; invest it for between 10-15 years and the charge is just 1 per cent.
Independent advice should be sought to compare the merits of this product with conventional with-profits bonds available from the leading with-profits companies Equitable Life, Norwich Union, Standard Life, GA Life, Scottish Provident, etc. Charges will be roughly similar, though past performance may not be.
Given that they are relatively risk-free investments, steady net yields of 7.5-8.5 per cent per annum (the sort of return predicted for the average with-profits fund) also make these bonds a very realistic option for cautious savers who can realistically tie up their capital for at least five years.
