Foreign & Colonial has come up with the with-prospects fund, an Oeic that works in a similar way to a with-profits bond.
The fund invests in a portfolio of stocks from the UK and overseas, plus fixed interest investments. It is designed to produce growth over the long term and to provide investors with the benefits of a with-profits bond, while attempting to remedy the problems associated with them through the Oeic structure. As an Oeic, the maximum investment through an Isa is £7,000 compared to £1,000 for an insurance Isa. Charges are also clear, which is not always the case when investing in a with-profits bond.
Like a with-profits bond, investors are protected from sharp movements in the stockmarket. However, it differs from conventional with-profits funds in that it works in a similar way to a capital protected fund.
This is achieved by the announcement of the prospects price each year, which tells investors what the minimum return is likely to be after 10 years. A smoothing effect is created by adding to the value of the prospect price each year if the stockmarket follows an upward trend. If the target is exceeded, this provides additional growth for investors.
The fund is positioned at the lower end of the risk scale and is likely to suit risk-averse investors. Capital withdrawals of up to 5 per cent a year can be taken and this can be used as an income stream where investors have not used their capital gains tax allowance.
However, investors who cash in their fund before 10 years will get the actual value of the fund at the time, which may be higher or lower than the prospect price
According to Standard & Poor's, the Foreign & Colonial high income fund is ranked 6 out of 37 funds based on £1,000 invested on a bid to bid basis with net income reinvested over three years to November 12, 2001.