Has anyone purchased investment bond ?

[Anh]

Hi All,

I would like to know if you could share:for if anyone whose tax rate is above 32.5% what would you do, apart from investing in more properties or commercial properties, or property development, share investing, super contribution, would you or have you purchased investment bond as part of your investment strategy?

- to save tax ( my understanding is that investment bond income is taxed at 30% and if you hold it for over 10 years, you no longer pay tax)
- you can transfer to others without triggering CG
- and the income does not count as part of taxable income


However i am not sure which providers be better in term of long term performance and fees paid

Would appreciate your thoughts.

Many thanks,

Anne

 

[Peter_Tersteeg]

Are you sure you don't mean an insurance bond?

Assuming this is the case, there's a few points on insurance bonds:

They are an investment vehicle, not an investment themselves. This is similar to using a trust, or superannuation as an investment vehicle. Within the insurance bond structure you can invest in a range of assets, but they're generally structured around managed funds.

If you hold the insurance bond without cashing out for 10+ years, it's capital gains tax free. There's also partial deductions at years 8 & 9.

You start by putting in an additional amount. You can then make additional contributions to the bond of 125% of the contribution of the previous year. If you make a higher contribution than 125% of the previous year, the 10 year time frame previously mentioned resets itself.

Since their an insurance product, they have a nominated beneficiary. When you cash out, it's the beneficiary who receives the money. Via this mechanism you can change beneficiaries hence transferring to others without incurring CGT.

As far as I'm aware (and I could be quite wrong on this), there's only a handful of companies in Australia that make these products publicly available. Once the structure is set up, you can invest in a fairly wide range of managed funds on the market.

Essentially insurance bonds are an excellent investment vehicle (for tax reasons) if your planning to invest on a 10 year time frame. If you're thinking of a retirement age time frame then super might be the better vehicle. The think most people here won't be too happy about is you're generally investing in managed funds.

 

[Anh]

Yes it is insurance bond. And because it is invested in managed funds which usually have high fees, and not sure about long term performance.

So far i know Austock, IOOF and AMP offer the product.

The thing about the poor performance and high fees might out weight the tax benefit of insurance bond.

Putting money into super is an excellent option as you suggested up to $25k,but for someone who is not yet close to the preservation age, it might not make sense to put in after tax contribution into super.

Thank you Peter for you help.

Anne

 

[Peter_Tersteeg]

Keep in mind the insurance bond is the vehicle, or the structure around the investment, it's not the investment itself, the managed funds are. There are costs around the setting up of that structure but that's more then outweighed by the tax benefits over the 10 year time frame.

The really question may then become what managed funds to you want to invest in. Each of the providers has access to a large range of funds and there are funds out there with good returns and reasonable fees. The trick of course is to identify these funds.

If you want to invest in this manner, focus on the investment itself, then worry about the right investment structure.

 

[Anh]

Wise advice !

Thank you very much Peter!

 

[redwing]

Any entry,ongoing or exit fees as well as those of the underlying funds?

 

[Anh]

Yes, i did further research and found Austock has a variety of options with multiple fund managers, but you need to go through a financial planner, with entry fee and on going trailing commissions. Austock seems to have more options with some good fund managers to choose from.

AMP 's fee is 1% but limited fund managers, Comminsure bond is 1-1.4% depending the option.

I wonder if there is any financial planner on this forum who advises clients to buy insurance bond.

Ta.

 

[coolcup69]

The insurance bonds currently available (at least on my last research into them) have very limited investment options which generally have higher fees. If you are expecting a very high rate of return from your investment of choice then an insurance bond may be worthwhile (as the lower tax rate will help your after tax earnings).

I am relatively conservative in my assumptions for rates of return going forward so the tax advantages rarely stack up vs the flexibility of having much more investment choice and ready access to my money.

 

[irawin]

I have set up with IOOF, mainly because I see this as a better option that going with Australian Scholarship Group (ASG) for my kids..

 

[Anh]

My colleague who bought into the Tax Minimiser Insurance bonds with OnePath and Australian Unity told me that the performance has not been great. Those options have been closed.

ta