03: The basic principles

Investment bonds can produce worthwhile levels of both income and capital growth for lump sum investments of at least £5,000, which is typically the minimum permitted investment.

Although most investment bonds do not run for a fixed term, they should really be held for at least five years. If you cash in your investment during the early years, you could end up with less than you put in, as a result of having paid a sizeable up-front charge and possibly also steep exit penalties.

The underlying funds provide you with an opportunity to pool your money with that of other investors and have it managed by expert fund managers. This is more convenient than buying individual shares and also reduces risk, because the fund will hold a broad spread of different shares or other asset types.

This pooled approach is similar to that used by unit trusts and investment trusts, but investment bonds are treated differently for tax purposes.Last Updated