Question
In March 2007 I purchased a Skandia Capital and Income Bond. The purpose being to grow capital and take tax free income up to 5 pc of the bond value.
Whilst I am satisfied with the income the value of the bond has obviously decreased beyond the market entry value. I realise that annual charges and withdrawals are applied but the current share index is some 20 pc higher now than when the bond was purchased i.e. 5250 March 07 - 6000 now. and yet negative growth stills applies.
Can you give a simple indication of any broad percentage growth that might apply purely as a measure for the aforementioned period
Are there any more viable options even within Skandia.Answer
Your Skandia Capital and Income Bond is a standard insurance company investment bond. This means that all income and growth is taxed within the fund at basic rate and you can withdraw up to 5% of your original investment each year.
It's important to recognise that the 5% annual withdrawals don't reflect the income produced by investments within the bond (which may be higher or lower), but is simply a withdrawal of capital. Investment bonds are also not tax-free - the fund has already paid basic rate tax and you might have additional higher rate tax to pay when the bond is eventually sold (probably only likely if you're a higher rate taxpayer at that time, see our life investment page if you want a full explanation of how the tax works).
Let's suppose the investments within your bond return 4% growth and 3% income a year, a total of 7%, you'd expect the bond to increase in value by around 2% a year after the 5% withdrawal (ignoring charges). Likewise, if the investments return 4% growth but don't pay an income then you'd expect the bond value to reduce by about 1% a year after the withdrawal.
One of the advantages of using Skandia is that they offer a choice of around 500 investment funds to hold within your bond (list here). So your bond's performance will obviously depend on which fund(s) you hold. Even if you're invested in UK stockmarket funds it's unlikely their performance will have mirrored the FTSE 100 (hopefully it's better!), so it's difficult to apply a broad expected percentage growth for the period since buying the bond.
If you want to check the funds held in your bond and list them in the comments section below I'll take a look and try to gauge whether you should be concerned about performance to date. And, more importantly, whether they're appropriate for you.
Meanwhile, a very rough calculation based on FTSE 100 returns over the period. Let's assume you invested £10,000 4 years ago. I'd have expected about 5% to have been deducted as an initial charge (it might have been different depending the adviser's commission terms/deals applying at that time), so your £10,000 becomes £9,500. Since then the index has fallen from about 6200 to 6000 - a 3% fall. Annual fund management charges of around 1.25% plus Skandia's annual bond charge of 0.75% will have wiped c8% off the value, although annual dividends of around 3% will have added c12%. Take off annual 5% withdrawals and your initial £10,000 investment might be worth around £7,700.
Assuming an investment bond is an appropriate investment for you then Skandia is not a bad place to be, but it's important to ensure you're invested in decent underlying funds that are suitable for your needs. It's straightforward and free to switch funds within your bond, if need be.
In March 2007 I purchased a Skandia Capital and Income Bond. The purpose being to grow capital and take tax free income up to 5 pc of the bond value.
Whilst I am satisfied with the income the value of the bond has obviously decreased beyond the market entry value. I realise that annual charges and withdrawals are applied but the current share index is some 20 pc higher now than when the bond was purchased i.e. 5250 March 07 - 6000 now. and yet negative growth stills applies.
Can you give a simple indication of any broad percentage growth that might apply purely as a measure for the aforementioned period
Are there any more viable options even within Skandia.Answer
Your Skandia Capital and Income Bond is a standard insurance company investment bond. This means that all income and growth is taxed within the fund at basic rate and you can withdraw up to 5% of your original investment each year.
It's important to recognise that the 5% annual withdrawals don't reflect the income produced by investments within the bond (which may be higher or lower), but is simply a withdrawal of capital. Investment bonds are also not tax-free - the fund has already paid basic rate tax and you might have additional higher rate tax to pay when the bond is eventually sold (probably only likely if you're a higher rate taxpayer at that time, see our life investment page if you want a full explanation of how the tax works).
Let's suppose the investments within your bond return 4% growth and 3% income a year, a total of 7%, you'd expect the bond to increase in value by around 2% a year after the 5% withdrawal (ignoring charges). Likewise, if the investments return 4% growth but don't pay an income then you'd expect the bond value to reduce by about 1% a year after the withdrawal.
One of the advantages of using Skandia is that they offer a choice of around 500 investment funds to hold within your bond (list here). So your bond's performance will obviously depend on which fund(s) you hold. Even if you're invested in UK stockmarket funds it's unlikely their performance will have mirrored the FTSE 100 (hopefully it's better!), so it's difficult to apply a broad expected percentage growth for the period since buying the bond.
If you want to check the funds held in your bond and list them in the comments section below I'll take a look and try to gauge whether you should be concerned about performance to date. And, more importantly, whether they're appropriate for you.
Meanwhile, a very rough calculation based on FTSE 100 returns over the period. Let's assume you invested £10,000 4 years ago. I'd have expected about 5% to have been deducted as an initial charge (it might have been different depending the adviser's commission terms/deals applying at that time), so your £10,000 becomes £9,500. Since then the index has fallen from about 6200 to 6000 - a 3% fall. Annual fund management charges of around 1.25% plus Skandia's annual bond charge of 0.75% will have wiped c8% off the value, although annual dividends of around 3% will have added c12%. Take off annual 5% withdrawals and your initial £10,000 investment might be worth around £7,700.
Assuming an investment bond is an appropriate investment for you then Skandia is not a bad place to be, but it's important to ensure you're invested in decent underlying funds that are suitable for your needs. It's straightforward and free to switch funds within your bond, if need be.
Read this Q and A at http://www.candidmoney.com/questions/question378.aspx
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