Investing in Capital Investment Bonds

If you like the idea of playing the market but you're not too keen on the risk, then a capital investment bond could be an option.

Bonds are very versatile. As an investor, no matter what your attitude towards security and risk, there is an investment bond that will come close to matching your requirements. However, most bonds are designed for investment over at least five years. If you cash in your investment before that time, you are likely to be charged an early-surrender penalty.

With a capital investment bond an investor stands to make a profit from any stock market upturn, but their capital is protected should stock market prices fall. There is an element of risk however, with the denial of any interest paid on the investment, should the investment fall flat during its investment term.

Bonds are set up through insurance companies without the need for a check on your health status and normally people of any age can hold a bond. Bonds can be opened onshore (within the UK) or offshore (usually in the Isle of Man or the Channel Islands) to take advantage of tax concessions. The decision will depend on your personal tax situation.

There are no maximum limits to invest, but barriers to entry can start higher than other bonds, with a £10,000 entry point being not untypical. However, the term of the holding can be shorter, with some investment durations starting from just three months.

In a low interest environment and an uncertain stock market, capital investment bonds certainly have their place. Drawing down income from a capital investment bond can be an option, though obviously any income drawn down will deplete the original capital. You may be able, depending on the policy, to make additional payments to the bond at any time, as well as one-off withdrawals.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.

The value of your investment can go down as well as up and you may not get back the full amount invested.