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Product matters

The Axa capital-protected distribution bond is a seven-year product that aims, I suppose,to replace with-profits bonds, a market that Axa pulled out of during the summer.

The first thing that I would question is the need over seven years to have a capital protection.

Although not out of the realms of possibility, it is unlikely that you will lose money over this time period. Therefore, are you paying unnecessarily for a guarantee – it is easy to market guaranteed products in times of volatility as losses are freshest in the minds of investors.

With a balanced portfolio that is already cautiously managed, with an almost 50/50 split between equities and fixed interest, is there any need to have a chunk of your money being used to pay for derivative guarantees?

If you are that concerned about the market being lower in seven years time, you probably should not be investing anyway, and if you are, you could have your own effective guarantee by placing 70-80 per cent of your funds in cash-based deposits and investing the balance in normal equity funds.

Having been rather negative, this is one of those products that, if you are happy paying the costs associated and you understand the fact that you could be giving up investment performance, this could be OK.

Axa is a strong investment house that is well known for the management of distribution funds. This should reduce volatility and it is cautiously invested. But is that really what is needed over the next seven years?

Ben Yearsley is an investment manager at Hargreaves Lansdown

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