Under the spotlight: Scottish life investment portfolio

The Product: Scottish Life Secure Investment Portfolio

The Deal: Scottish Life, the Edinburgh-based insurer, is offering a offshore investment bond through its Isle of Man subsidiary.

The bond can be divided into 100 individual policies for ease of enactment, with minimum investments per policy of pounds 500. However, the minimum initial investment is pounds 15,000.

The bond invests in a range of tracker funds, including Japan, where it is linked to the performance of the Nikkei 225 index, the UK and the US share indexes. There is also a cash fund investing in offshore deposit accounts.

Investors can define the extent of risk they are prepared to accept, limiting losses in any one quarter to between 1 and 5 per cent of capital invested.

They can also define the proportion of their investment in each fund.

Cash withdrawals of 5 per cent or less are not considered as income and can be made free of tax.

Withdrawals of up to 10 per cent of capital may be made without penalty from Scottish Life.

Switches may be made between funds without capital gains liabilities. Annual loyalty bonuses of 1 per cent are attached to the investment after the fifth year.

Plus Points: This is a more sophisticated variant of typical offshore investment bonds. It offers a range of bells and whistles that may make it attractive to sophisticated investors and those with specific financial planning needs that require them to place a proportion of their funds offshore for the time being.

The investment grows free of tax, which is only paid at full encashment. The capital protection, which guarantees the original sum invested, plus the absence of a time limit on the investment, mean that it is possible to wait for a good moment to sell up, rather than have a forced maturity of the investment.

Drawbacks and Risks: The charges are extremely heavy - 8 per cent of the fund's value, deducted monthly over the first five years of the investment, plus a further 1.25 per cent annual management charge, and potential penalties for early encashment.

For most investors, this type of fund is slightly over the top. Guarantees of this sort are available onshore, with PEPability (and future ISAbility) on sums of pounds 5,000-pounds 6,000 a year, more than enough for most needs.

Marks out of Five: Four for clever design, two for charges and meeting typical financial needs.