Critical illness and property funds explained ?
One important point to note is that by its nature property is a relatively illiquid investment. It is not easy to turn bricks and mortar into cash because the sale of a property is a protracted business in terms both of getting a buyer and of completing the legal transaction. For this reason, most property funds contain a clause whereby they may delay the cashing-in of units by investors for up to six months if necessary. To avoid the necessity of invoking this clause, most also have “stand-by” credit facilities with their parent company or a bank whereby the latter guarantees to provide specified sums of cash if this is necessary. Such guarantees are, of course, only as good as the companies offering them and those offered by smaller companies and funds may be deficient in this respect.
Property funds are normally valued at monthly intervals. Such valuations are to some extent arbitrary, because the only real test of a property’s value is the price that someone actually pays for it. Hypothetical valuations based on the return that institutional investors are currently seeking on new property investments are no more than estimates and cannot provide anything like the same degree of certainty about value as a Stock Exchange price quotation does. Valuers do, of course, do their best to make as accurate judgements as they can, but movements in valuations over any short period should not be taken too seriously.
Equity funds are very similar to unit trusts, restricting themselves to investment in shares. Fixed-interest funds invest in a wide range of fixed-interest securities from local authority to commercial loan and gilt-edged stocks. The gilt-edged critical illness insurance fund restricts itself to the latter category. The cash or money fund invests only in short-term deposits with banks and local authorities, and can obtain far better interest rates on the money in large sums than the individual can hope to get on his small deposits. The managed fund normally places its investments between all these types of investment, holding units in all these other funds.
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