Showing posts with label term annuity. Show all posts
Showing posts with label term annuity. Show all posts

Sunday 31 January 2010

Other interesting interest-bearing investments: Mortgage Bonds and Term Annuities

Today a myriad of unit trusts invest in interest-bearing investments.  These include:
  • money market funds,
  • income funds, and,
  • bond funds.

Mortgage Bonds

One of the most attractive interest-bearing investments with a fixed capital value is participation mortgage bonds. 
  • Here you invest in units in large mortgage loans that are granted against the security of a first-class physical asset, for example, commercial, industrial or other property. 
  • Your capital is guaranteed and you earn interest at a competitive rate that can be variable or fixed. 
  • A great advantge is that a participation bond becomes quite liquid after the initial five-year period when you can still enjoy the interest income and withdraw on only three months' notice.
  • (These mortgage bonds caused the subprime credit crisis in 2007-2008 in US).

Term Annuity

A voluntary purchased term annuity is another important investment product from which you can earn a regular income.  It is simply the exchange of a cash lump sum for income, which is paid annually, half-yearly, quarterly or in monthly instalments over a specified period (minimum five years). 
  • This basically means that your original capital is refunded by way of regular instalments together with interest earned on the investment. 
  • You will therefore not get back any capital at the end of the period as in the case of fixed deposit. 
  • A voluntary term annuity can be purchased at any life office and is in essence an insurance contract. 
  • The interest or annuity rate is fixed for the term of the contract, but varies from institution to institution. 
  • This investment product also offers a tax benefit, as you pay tax only on the interest part of your annuity.