Investment Bond Performance

Investment bonds are used to invest in a wide range of funds and assets with the aim of providing capital growth. Individual investments are pooled together and managed by a funds manager. Investment bonds are usually medium to long term investments greater than five years. They are treated differently than regular bonds in terms of taxes and legal structure.

Investment bonds pay taxes on the interest earnings they accrue and then re-invest the net earnings back into the bond. Because the tax is paid directly from the bond, the individual bond holder does not have to include the income on their annual tax returns. If the investment is held until its maturity, it will pay the value of the bond, plus interest accrued, but less the taxes that have been paid on the interest.

For every bond there is a rating, and even with investment bonds, which are pooled and managed together, the bonds are rated. The bonds are rated with twenty different grades from AAA (the highest grade given) to D. These ratings are an easy way to see which bonds carry the lowest and the highest risk to investors; AAA graded bonds represent the lowest risk to the investor, and bonds graded a D should be avoided. Inversely, the highest rated bonds often also have the least rewards in terms of yield (interest earnings). Many times, lower graded bonds, such as BAA, have higher yields than the AAA graded bonds. Bonds that are graded B or lower are considered highly speculative, and their interest payments are not assured. Even the original investment may be lost. However, these bonds pay far higher interest rates than the more highly rated bonds.

Investment bonds are managed by an individual or a team of financial professionals. It is their responsibility to make sure that they buy bonds which perform to the highest expectations.

Managed investments are convenient for an investor because the manager handles the day to day administration of the investments. Also, the investments are diversified into a range of assets. Through the pooling of funds, managed investments can usually offer a wider spread of investments than is otherwise possible for most investors, and therefore, a lower level of risk.