Managed funds

Investments are in a mixture of the life company's funds. Because of this, performance is less volatile than other types of funds.

You are in effect using the expertise of the life Company's managers to choose a mixture which achieves good returns at lower risk.

Some funds set off charges against annual bonuses, others do not, so it is necessary to take this into account when comparing. Some providers also charge by investing less than 100% of the amount put in; this is called the allocation rate.

Advisers get a commission - try for a rebate.

Market value adjustment

Most managed funds with an equity involvement carry a provision for a market value adjustment (MVA) in case the underlying assets of the fund are severely depressed at the time of an individual withdrawal due to a considerable fall in the stock market. This is in order to protect the interests of the remaining investors.

The application of an MVA is a rare event but to avoid it happening to you, it is wise to ensure that you can be flexible in the timing of your withdrawal so that you can defer it until the MVA is removed.

With profits bonds

These are a more conservative form of managed fund. The difference is that the value of the fund is unlikely to fall because annual bonuses (also called reversionary bonuses) are declared but some growth is retained to smooth out returns and pay for terminal bonuses (payable on terminating the investment).

With profits bonds have become a very popular form of investment, particularly with retired people, probably because of their steadiness in growth, despite the disadvantage of not knowing in advance what the terminal bonus will be. On the negative side, in recent years there has been a downward trend in bonus rates.

Investment bonds

These are similar to with profits bonds except that they are unit linked, so there is no smoothing. This makes them more volatile.

As for with profits bonds, the income is normally left in, as the objective is growth.

Some companies permit investment in a number of their funds, making the bond into a wrapper like an ISA. Transfers between funds within the bond do not create a necessity to pay any accumulated capital gains tax at that point as they would outside it this is a deferral of tax.

Investment bonds are sometimes used as long term investments for children and grandchildren.

Distribution bonds

These are similar to investment bonds except that the objective is income, so all the income from the underlying investments is paid out, while the capital value is maintained. They are popular with retired people.

Guaranteed equity bonds

Some bonds are set up to pay a guaranteed income over a period, perhaps five years, or achieve a guaranteed growth, dependent upon certain criteria being met. The comments above regarding guarantees are important and it should be remembered that higher interest can only be achieved by taking greater risk.

----
If you need to borrow money, http://www.homeloansonline.org.uk provides a quick and easy application form. Get all the options clearly explained to you and then choose. Ideal for people looking for a personal loan