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Prudential takes rough with the smooth


PruFund Investment Plan

Smoothed unitised investment bond

Growth and income by investing in a choice of two smoothed managed funds

Minimum investment:
Lump sum £5,000

Fund links:
PruFund growth fund, PruFund growth and income fund

Regular income option &#45 establishment charge 0.45% a year for first five years, annual 1.5% until year 10, thereafter 1%, no income option &#45 establishment charge 0.25% a year in first five years, annual 1.25% until year 10, thereafter 1%, initial 1% for three year cash in charge option

Initial up to 5.25%, renewal up to 0.5%

Tel: 0845 7900 999

The PruFund investment plan is designed as an alternative to traditional with-profits. It provides a choice of two funds &#45 PruFund growth and PruFund growth and income.

Michael Philips proprietor Michael Both notices that the initial asset mix is close to Prudential&#39s with-profits fund. He says: “The investment strategy appears reasonable and as usual Prudential&#39s literature is clear and comprehensive. The choice of charging structures and commission options is helpful, as are reduced charges for larger investments. There are no market value adjustments since these are just managed funds, although the net asset value differs from the unit price.”

On the downside Both thinks the charges for taking a regular income seem high compared with not doing so but he is more critical of the expected growth rate, a term used in the literature and would have preferred a more neutral term such as target or benchmark.
Both is also concerned that although hedge funds make up a small fraction of the underlying assets, the literature does not say anything about the potential risk of substantial gearing in those investments. He adds: “Since Prudential&#39s marketing emphasises comparisons with deposit accounts, the very high early encashment charges seem inappropriate.”

Both concludes: “I am far from convinced of the merits of Prudential&#39s smoothing process. An investor could experience smooth upward moves interspersed with sudden jolts downward. Many clients could find that more disconcerting than normal fluctuations, especially if they bought on the literature&#39s &#39only a bit riskier than gilts and fixed interest deposit&#39 message &#45 which I note is only for IFA consumption.”

Suitability to market: Average
Flexibility: Poor
Charges: Average
Adviser remuneration: Average

Overall 4/10



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