It's hard to know where to start with investment bonds

INVESTMENT bonds are the topic again this week.  And I must confess, when I write about them, I feel like one of those people demonstrating a whiz bang gadget at the shopping mall. 

These bonds have such a unique range of features that it is hard to know where to start. 

Just to refresh your memory, they are a tax paid investment, with the bond fund paying tax of up to 30% on your behalf.  All money invested in them comes from after tax dollars, but there is no limit on the amount you can invest and your money is accessible at any time. 

Because the earnings accrue within the fund there is no assessable income to declare on your tax return each year, and if you hold them for ten years or more all proceeds can be redeemed tax free. 

This makes them ideal for people who want to reduce income for purposes such as maximising the family tax payment, or becoming eligible for the super co-contribution or the Commonwealth Seniors Card.

Investment bonds are especially good for estate planning as they sit outside the will and cannot be challenged. Think about Harry aged 80, a wealthy retiree now happily re-married after a nasty divorce, who wants to leave a range of bequests to children of both marriages.

He is aware that there is acrimony between some family members and it is extremely important to him that his assets on death be split in the way he wishes, and not eroded by family legal battles. 

He invests $250,000 in his own name in each of five separate investment bonds, naming one of the five children as the beneficiary of the bond upon his death.  Because an investment bond is technically a life policy the distribution of the proceeds cannot be challenged and he can sleep soundly in the knowledge he has solved the potential litigation problem in advance.   Furthermore, if he dies before ten years have elapsed the proceeds can be redeemed tax free by the beneficiaries.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: