Friendly Societies

INVESTMENT BONDS

Investment bonds are multi-purpose savings vehicles that help consumers to prepare for a wide range of events which come up during the course of their lives, such as retirement funding, health/aged-care costs and education costs.

Investment bonds have a number of strategy-based applications, such as consumers have the option of transferring investments to beneficiaries and the ability to nominate beneficiaries (estate planning). On death, the balance of the bond is paid tax-free directly to the beneficiary, rather than to the estate, avoiding possible disputes and claims from third parties.

Investment bonds are similar to a managed fund, but unlike most managed funds, they are not a trust. Where a trust does not pay tax (provided it distributes its taxable income and tax is payable on this income), earnings from an investment bond are taxed at the rate of 30 per cent and after-tax returns are reinvested into the bond.

Investment bonds can be capital guaranteed through investments in cash and other conservative investments. Modern investment bonds generally offer several fund investment options that are usually unit-linked. If they choose to, investors can construct their bond’s own portfolio mix from the options available on the bond’s menu. Options offer varying risk exposure across most investment asset classes.

Investment bonds have features that shape their longer-term, savings-based nature, most notably a 10-year holding period where accumulated capital and earnings are accessible tax-free after 10 years. Investors can make ongoing contributions into the fund over the life of the bond up to a maximum of 125 per cent of contributions made to the fund in the previous year.

FSA members who offer investment bonds are:

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