Cautious managed funds should be the basis of all simplified investment "stakeholder" funds, under p...
Cautious managed funds should be the basis of all simplified investment "stakeholder" funds, under proposals released by the UK government for the new range of financial products.
Details revealed in the Proposed product specifications for Sandler "stakeholder" products created by both the Treasury of the Department for Work and Pensions, suggest the make-up of funds under the simplified suite should be a maximum of 60% investment in equities and no more than 50% can be invested outside the UK.
Restrictions should be placed on the risk diversification of the fund content rather than quantitative controls, using ABI and IMA asset class classifications, says the paper, to restrict the maximum level of different types of equities and ensure consumers get the lower level of risk they seek.
While there is no minimum equity exposure, funds will be required to be diversified across sectors, geographical markets and a wide range of funds while regulations will specify investments should be based on:
Cautious funds will provide the risk level they seek because almost 50% of balanced managed funds, which have 85% maximum equity exposure, have seen almost 50% of funds lose money over the last five years, compared with only two cautious managed funds, according the Treasury.
Proposals for lower risks funds are based on research by the Financial Services Consumer Panel in 2000 which suggests '51% of those with £13,500 to £24,999 [in savings] said they definitely wouldn't invest their money in anything risky' because they can ill-afford to lose a substantial portion of their savings in the stock market.
An additional consultation may also be held later in the year to establish whether the tax treatment of Isas, collective investment schemes and life insurance should be reviewed to clean up some of the complexities and legalities of tax issues to present a simpler regime, says the document.
At present, investors in life insurance products appear to carry a higher risk than mutual funds because it is down to the company to ensure it can honour its agreements to pay out on a product, whereas mutual fund investors effectively owns the assets and are exposed only to investment risk and fraud.
The charging levels of these funds is likely to be subject to discussion with the industry, given the government would like to set a cap of 1% on all simplified investment funds but has opened to discussion with the industry about alternatives levels.
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