Glossary: With-profits bond

Lump-sum investments that usually have no set term or fixed maturity date. The consumer’s money is invested in the provider’s “with-profits” fund and the value of the initial investment accumulates through the addition of bonuses, which are decided by the provider’s actuaries. Bonuses are usually added every year – based indirectly on what the with-profits fund has earned – and once added, they cannot generally be removed. These bonds are generally considered to represent a lower risk because with-profits funds usually include a mix of assets. Some bonds are subject to early surrender penalties, which usually apply during the first five years and some life companies penalise investors for making withdrawals from products invested in their with-profits fund, which is called a market value adjustment (MVA).

Relevant to: Funds

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