Definition of zombie fund

This is a closed with-profits fund that no longer writes new business or policies. This can include pension and investment funds. [1]

With-profits funds were for many years the mainstay of the financial services industry, being widely sold as a way of building up pension funds or to pay off a mortgage. But the amounts they repay investors is based on formulas so complicated that they puzzle financial advisers, let alone their clients.

There are two types of with-profits policies: a with-profits bond, which invests a lump sum payment; or an endowment, where you pay in a fixed amount every month. Both are long-term schemes and there are two components to the money you get back: a regular bonus, which is typically paid once a year, and a final, or maturity, bonus when your policy comes to an end.

When you sign up, the contract will specify the length of the scheme, and may guarantee a level of bonus payments. Annual bonus rates are normally lower than interest rates on the more generous current accounts, let alone savings accounts. So whether your with-profits policy ends up being a good deal will depend on the size of your final bonus." [2]

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