What is a unit-linked fund?
A unit-linked fund is an investment plan, which combines your money with money from other investors and buys units in a fund. The number of units you get depends on how much you invest and the price of the units at the time you buy.
For example, if you invest €100 at a cost of €1 per unit, you will get 100 units.
You can invest either a lump sum or make regular investments, depending on the fund.
Who looks after the fund?
Investment managers look after the fund and will make decisions on how to invest it. They can invest in a mix of assets such as:
- Cash or high-interest deposits
- Bonds issued by governments and companies, which pay a fixed rate of interest for a set time
- Equities, or shares in Irish and international companies quoted on stock markets
- Property, including commercial properties such as offices and shops which produce an income from lease or rent
What risk is involved?
You can choose from a range of different funds to suit your attitude to risk. These include low-risk deposit-type funds, medium-risk funds and higher-risk funds that are mostly invested in the stock market. Almost all unit-linked plans involve capital risk.
Some plans offer a money-back guarantee on a particular date, for example, the sixth anniversary. Such plans usually have lower potential for growth than other unit-linked plans. You should also check the charges to see if you are paying more for this guarantee.
When can you take out your money?
Unit-linked funds are open-ended, which means you can withdraw part or all of your investment at any time. However, you should be prepared to hold onto your investment for at least five years to increase your chances of getting a return, as investment markets can be volatile over short periods and the bulk of the plan charges are paid in the first five years. If you cash in your investment with in the first five years you increase your chances of losing money.
Also, if you need to withdraw in the first few years you may have to pay an early encashment fee. You have to pay several general charges on unit-linked funds.