Today sees the launch of the Virgin Income PEP, a corporate bond PEP compiled from the "low risk'' end of the market and offering a tax free 7.84 per cent - double the rate on offer from most building society accounts and significantly more than the best Tessa at 7.25 per cent. Predictably it is the cheapest on the market. The only charge to investors is annual 0.7 per cent management charge.
Some 45 per cent of the fund, which like its equity cousin will be managed by Norwich Union, is invested in a spread of gilts tracking the FT-A 5- 15 year Index. The 55 per cent will be divided equally between 22 top- rated corporate bonds.
As far as corporate bond PEPs go this is a low yield, low charge investment vehicle with a running yield of 7.84 per cent net of charges and a redemption yield of 7.2 per cent. The credit risk is also low. But because the fund will be passively managed there is a higher risk to the interest rate.
Stamped with the ubiquitous Virgin logo it will undoubtedly prove attractive to bank and building society depositors who have seen savings rates savaged. But think twice if you want your capital to remain intact. As events this week have proved bond prices can take a sudden pounding.
Simon PincombeReuse content