With Profits is a medium to long term investment option which should be held for a minimum of five years, ideally longer. With Profits aims to offer a better return than a typical savings or deposit account but, because of the mix of the investments ( Different investments (or assets) such as shares in companies, fixed interest securities and commercial property that make up the With Profits Fund) ) held within the fund, it is more risky than a deposit account.

How does With Profits work?

Money invested in a With Profits investment is pooled with that of other investors. This means investors benefit from:

• a wide ranging portfolio including shares, fixed interest securities ( A fixed interest security is a way of 'lending' money to a government, or to a company, in return for a fixed rate of interest over a set period. This type of investment is intended to provide a regular, reliable income ) and commercial property which may not be available to them otherwise. Risk is spread across the different assets providing the potential for more stable returns over the longer term

• the costs of investments being spread across all customers plans so they are more easily absorbed

A With Profits investment grows when bonuses are added. For most policies there are two types of bonus - annual bonus ( A sum of money which may be added to your policy each year. ) and final bonus ( A sum of money that may be added when payments are made from a With Profits policy. Final bonus rates aren't guaranteed and can be increased, reduced or withdrawn without notice ) . Each year we work out how well the With Profits fund investments have done. The bonuses paid depend on how the investments have performed and the overall aim of providing relatively stable returns for customers.

What do you need to know about With Profits investments?

With Profits helps to even out short term ups and downs that may be experienced when investing directly in the stock market and other investments. It does this by Smoothing (PDF 73KB) the returns. In some years you may get less than the With Profits investment returns but in other years you may get more. This helps you to plan for the future by reducing the fluctuations in the value of your investment.

Introduction to Smoothing (PDF 73KB) factsheet.

What is a market value reduction (MVR)?

Another feature of With Profits investments is market value reductions. A market value reduction is an adjustment to the amount we may pay out if you leave a With Profits fund. The adjustment is made to ensure that everyone invested in the fund gets their fair share of the investment return.

Market value reductions are explained in more detail in our factsheet Market value reductions and why they might be applied (PDF 208KB).

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