Prufund cautious and Prufund protected cautious will have an asset mix of around 70 per cent in fixed interes and cash, plus 30 per cent in equities and property. They will invest in the Prudential with-profits fund and will be managed by the Prudentual Portfolio Management Group.
Prufund cautious protected has a fifth year anniversary guarantee, which locks in gains, for an extra 0.75 per cent annual charge, but this will be discounted to 0.5 per cent cent until the end of the year.
With-profts funds are designed to smooth out the peaks and dips of investment by holding back some of the returns in good years so there is money to fall back on in the bad years.
Prufund cautious and Prufund cautious protected will buy units in the Prudential with-profits fund, the value of which depends on the unit price on the day the investment is made and the amount invested.
In normal market conditions, unit prices increase in line with the expected growth rate, which is the annual rate that will be applied daily to increase the unit prices. This is set quarterly by Prudential’s directors based on the expected long-term investment return on the funds’ assets. An expected growth rate of 6.1 per cent a year has been set for the new funds.
When market conditions are volatile, unit prices will be adjusted if the fund performance moves more than 10 per cent up or down from the value of the investment based on the expected growth rate.
Prudential decided to launch these funds because stockmarket volatility and low interest rates on savings accounts has led to a demand for more cautious inbvestments.
Smoothing provides a degree of protection from a bumpy ride on the financial markets, but does not insulate investors completely, as unit prices could be reduced if the underlying assets fall by more than 10 per cent away from the value based on the expected growth rate.