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Insurance industry

Misleading Promotions: A Closer Look at Commercial Union's Monthly Income Plus Fund

Strategic Insights

— 1 min read

Commercial Union is promoting its Monthly Income Plus Fund, a unit trust invested mainly in fixed-interest securities, with an advertised net yield of 6.63 per cent, claiming it to be better than the average building society return of 4.45 per cent net. However, the comparison is selective, as the building society data relates to a '£25,000+ Index', making it not applicable to the general public. The promotional materials, including a 10-year graph, are also misleading, comparing the fund's performance with building societies without considering charges associated with stock market investments.

Key Takeaways:

  • Commercial Union's Monthly Income Plus Fund is invested mainly in fixed-interest securities, which allows for higher income generation but limited capital growth.
  • The fund's promotional materials, including a 10-year graph, are misleading as they compare the fund's performance with building societies that have no charges, unlike stock market investments.
  • The comparison between the fund and building societies is selective, as the data relates to a '£25,000+ Index', not applicable to the general public.
  • Anyone who invested £12,000 in the fund five years ago has received an average net monthly income of £69.55, totaling £4,173, with a capital growth of £192.
  • The fund's reliance on fixed-interest securities has resulted in lower capital growth compared to the FT All Share Index, which had a price to pay of £12,000 over the same period.

Statistics:

  • Average net yield of the Commercial Union's Monthly Income Plus Fund: 6.63 per cent (equal to 8.29 per cent).
  • Average building society return: 4.45 per cent net (5.93 per cent gross).
  • £25,000+ Index related to two leading building society accounts for sums of £25,000.
  • Average net monthly income per £12,000 investment in the fund over 5 years: £69.55.
  • Total income received per £12,000 investment over 5 years: £4,173.
  • Capital growth over the 5-year period: £192.
  • Price to pay for the reliance on fixed-interest securities: well below the FT All Share Index.

Sources:

  • Commercial Union's promotional brochure for the Monthly Income Plus Fund.

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