Friends Provident International has created an Isle of Man domiciled unit-linked bond which provides free switching between 95 funds from 31 fund management groups. The bond is available in sterling, euros, US dollars and Hong Kong dollars. Investors can choose up to 10 fund links at any one time from fund management groups including Fidelity and Gartmore.
Friends Provident International has negotiated special terms with the fund management groups so investors in the bond do not have to pay an initial charge on any of the funds they choose. Instead, the funds are single priced with annual charges between 0.1 per cent and 3.35 per cent.
There are three categories of fund links international managed, specialist and euro funds. These enable investors and their advisors to construct diverse, risk-tailored portfolios.
The bond is normally made up of a cluster of 10 policies of equal amounts but investors can choose to have up to 100 policies. They can access their capital at any time but penalties will apply if they surrender during the first five years. This penalty is 5 per cent in the first year and reduces by one per cent each year.
However, investors can make withdrawals of at least 500 or the currency equivalent on a monthly, quarterly, termly, half yearly and yearly basis to provide a regular income. Up to 10 per cent can be encashed each year as long as at least 5,000 remains invested.
This bond offers a good selection of fund links without being overwhelming. However, one potential drawback is that fund switching may not be free in the future. Another is that a UK investors who invests offshore for tax reasons will be liable for income tax once the proceeds of the bond are transferred onshore and this could hit them hard, particularly higher-rate taxpayers.