Q: I have a With Profits Investment Bond that I took out with NPI in 1995. Although it produced good growth in the early years its value has reduced substantially of late and I understand returns inthe future are likely to be very modest; should I cash in the bond and invest elsewhere?
A: Many people are in a similar boat. NPI are one of a number of offices (including Royal & Sun Alliance, Scottish Provident, Scottish Mutual, Pearl Assurance and Equitable Life) who have closed their With Profits Funds to new business and, at the same time, altered the Funds asset mix. This change entails more of the fund being invested in fixed interest investments with less, if any, remaining in the potentially more rewarding area of equities.
This means that, on an on-going basis you are likely to enjoy lower growth prospects for your money than could have previously been expected.
Cashing in and re-investing in alternative funds is certainly an option, but it is necessary to take into account a number of factors including – exit penalties of the existing provider, initial charges of the new investment institution and whether the existing provider is going to impose a market value reduction to the value of your investment if you take funds away from them.
At present, many With Profits providers are imposing market value reductions of between 5 per cent and 25 per cent of the value of funds withdrawn.
This is where the services of a good Independent Financial Adviser will prove valuable, by comparing expected returns against the alternatives available they can determine how attractive a change of investment really is.
Probably of greater importance is that they should be able to identify whether your contract has a date at which you can exit without penalty.
If you want to know the alternatives, call me.
o Ian Brown is a partner in Brokerhouse Independent Financial Advisers who are authorised by the Financial Services Authority. Tel: 028 9087 1700.
