Beware the media criticism of with-profits bonds ' compared with most equity and bond investments they will perform better and give peace of mind, writes David Aaron
Recent newspaper articles have misled investors about the merits of with-profits bonds because of the difference between the amount companies earn on their with-profits fund and the amount they pay out. The Prudential's with-profits Bond Fund made a gross investment return of 86.6% over the past five years. Out of this, it had to pay 15.2% in tax giving a net investment return of 71.5%. From this, the deduction over the five-year period was 12.8% for charges and the cost of 'smoothing', giving a net bonus return of 58.7%. The equivalent annual reduction in yield is 1.7% a year, which is ...
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