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Friends mix the risks

Friends Provident has introduced the investment portfolio bond, a unit-linked bond providing access to a range of unit-linked funds and four ready-made portfolios.

Investors and IFAs can create their own investment portfolios by choosing up to 10 funds from the 16 that are offered. These include UK equity, North American, with-profits and a fund of external funds.

The four portfolios are a ready-made mix of these funds and they are designed to cater for different investment objectives and risk profiles. The cautious portfolio is the least risky and is split equally between the fixed interest and with-profit funds. The managed portfolio is divided between the managed and UK equity funds and is for investors with higher risk profiles. The balanced portfolio sits in between the other two funds on the risk scale and is divided equally between the managed and with-profits funds. An ethical portfolio is also offered and is split between the stewardship and managed stewardship funds.

Withdrawals can be made up to 7.5 per cent a year, which investors can take as regular income. If they exceed the limit in the first five years, an encashment charge is made so investors need to be aware that capital erosion is a possibility.

Norwich Union&#39s portfolio bond is a unit-linked bond that has 13 more funds than Friends Provident&#39s, but it has no ready-made portfolios and investors can only choose up to six funds. However, it allows withdrawals of up to 10 per cent each year without incurring an encashment charge, which may be more suitable for those who want to take regular income from the bond.

According to Standard and Poor&#39s, five Friends Provident unit-linked pension funds are top quartile and seven are bottom quartile based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to September 17, 2001. There is no three-year past performance for the remaining three funds.

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