With-profit Funds explained
With-profits investments differ from direct stock market or unit-linked investments in that, rather than immediately experiencing the ups and downs of market volatility, investors’ fund values grow by the addition of annual and final bonuses based on the profits of the with-profits fund. The with-profits model holds back some of the returns made on its funds in good years to subsidise bonuses in years of weaker market performance and guarantees to payout all invested capital plus added bonuses on death.
With-profits continue to make up a considerable proportion of investments in the UK. They will not be appropriate for every person but they have a place in the portfolios of people looking for a cautious investment that is likely to outperform cash deposits and provide capital protection over the medium to long term. With-profits works if investors are looking to diversify their risk or who are looking for a less volatile alternative to many managed funds.
With-profits Funds should ideally be held for 5 years or more.
Our With-profits Fund
Healthy Investment’s Ethical With-profits Fund aims to provide members with steady growth through a cautious, actively managed fund over the medium to long term, whilst smoothing out the fluctuations in investment markets. It offers investors a way to invest and save for their future in an ethical and cautious With-profits Fund that invests in a mix of different assets, which might be difficult to achieve as a direct individual. These include government and company bonds, UK and global shares, commercial property and cash deposits.
We ensure that our investment stance reflects the wider views of the Society’s members who want us to allocate the majority of funds to companies involved in activities that benefit society and the environment. We avoid investing in companies involved in certain industries and activities which are of concern to our members, including the alcohol, arms or tobacco industries and gambling and pornography providers. We also avoid investing in companies that do not have mechanisms in place to uphold human rights or who cannot demonstrate responsible business practices.
By investing members’ money ethically and responsibly we believe that we can generate better long term value for our members and better outcomes for society and the world we live in, with environment, social and governance (ESG) considerations integral to our investment approach.
To maximise the potential return, the stocks and shares, commercial property and fixed interest bonds in the Ethical With-profits Fund are professionally and actively managed. We use external fund managers who have the skills and expertise in each asset class to seek every opportunity for growth whilst only exposing the Society to an acceptable level of risk. They provide a bespoke service and manage the investment strategy, asset allocation and individual stock and asset selections.
In a With-profit Fund investors share in all of the profits of the Society after deduction of running costs and receive their share in the form of bonuses that reflect the performance of the investments in the fund. There are three types of bonus, Annual, Interim and Final, and all are important.
Annual, or reversionary bonuses are declared each year, added to the investment and reflect the performance of the investments in the fund.
Interim bonuses are added if a policy is surrendered or a withdrawal takes place and covers the period between the end of the year of the last declared bonus and the date of any withdrawal.
Final, or terminal bonuses may be paid to further increase the amount members receive when investments are finally withdrawn, to ensure that investors receive their fair share of the returns generated by the With-profits Fund.
One of the main aims of the Healthy Investment Ethical With-profits Fund is to reduce the impact of short term market volatility and to help provide investors with a consistent return. This is achieved by “smoothing” the amount of annual return where some of the returns are retained in periods of good investment returns and applied during periods when investment returns are not as good.
This is of great benefit especially where a With-profits Fund is being used to fund something which happens at a specific date such as retirement
All of Healthy Investment’s ISAs and Investment Bonds include life cover to ensure that the initial investment plus all the bonuses that have been added, are paid out on the death of an investor.
With Healthy Investment’s Tax Exempt and Standard Savings Plans the sum assured agreed on the opening of the plan is the absolute minimum the policyholder is guaranteed to receive at the end of the chosen term, providing all the premiums have been paid. Every year a bonus may be added to these Savings Plans to increase the guaranteed amount received on maturity. The bonuses are calculated as a percentage of the original sum assured and once a bonus has been declared and added to the policy it can never be taken away.
Market Value Reduction
In extreme situations the society would have the ability to reduce a member’s fund value when it is being paid out. Known as a “market value reduction”, this would occur if there had been a significant fall in the value of investments that it had not been possible to smooth out by using gains from previous years.
A MVR could be applied if a customer wished to withdraw from the fund at a time when the market value of the fund is reduced. The payout would then reflect the reduced market value of the fund in a manner which is fair to all customers.
MVRs are never applied in the event of the death of an investor or on Tax Exempt or Standard Savings Plans.