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Livret A/Assurance Vie


Grecian
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I know this topic has been ‘done to death’, and apologise for bringing it up again, I have searched all the archived threads, but there are still some elements of the products I can’t get my head around. Any help would be most appreciated.

 

Livret A, pretty clear on this one I think, limited to 15,300 euros per person, interest rate to be 2.5% from the 1st February, and is both free of income tax and social charges, and can be operated as an instant access account. Hope I have got that right.

 

Assurance Vie and PEA’s, I can get my head round the tax and social charge structuring, i.e. you will pay income tax and social charges on any withdrawals in the first 8 years, no problem. Now the waters start to muddy a bit, I have read that there are different types of these products available: share based, unit trusts and a cash safe product. Also self-select options or products provided by the bank the products are taken out through. Here come the questions.

 

How does the cash safe product work? I have found some of these on the Internet offering 5% guaranteed for the whole of 2009, are they totally safe?

 

Self-select option, can shares, oiecs and unit trusts from the UK be placed within the Assurance Vie, i.e. say a fund from Invesco for instance, or are you restricted to only buying French funds?

 

I have also read somewhere that existing UK based funds can be transferred into either Assurance Vie or PEA’s, is this correct please?

 

 

 

 

 

 

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Hi,

    Life assurance plans are basically an envelope within which almost any type of investment can be held. The "guaranteed € funds" are paying between 4 and 4.5% pa on average , the best of these (and every other kind) are those available online with no entry fees.(see Fortuneo/Symphonis Vie)

    You can take a "multi-support" plan which has a choice of underlying funds ranging from a guaranteed € fund to the most high risk equity funds and can switch between funds with no CGT  liability.

     5% sounds a little too good but is not impossible--be sure it is a well-known company and v important -no entry fee ,otherwise you lose all the first years gain.

     It is not possible to transfer existing holdings into life assurance without selling-and so creating a CGT liability. It may be possible off-shore, but with the savings directive , I doubt it.

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Hi!

There are basically 2 different types of Assurance-Vie.

1. En "Unité de compte" - then you capital is safe.

2. Free choice of investment: Here you have to be discerning. A Assurance-Vie is not a short term matter, so a promise of 1st year return, does nt mean much.

Also all the contracts with capital garantie, have catches - you have to go into detaail how that works ( Consider a bank never looses).

Contracts with no entry costs , also basically mean that the costs are collected on a yearly basis .

In some cases if you reshuffle the investments, there are extra fees.

In an assurance-vie or PEA you can not transfer shares or obligations from France or from other countries.

If you are considering in short or longer period any of these contracts, it is advisable to start as soon as possible with a token mount, since from that date onward the 8 year period beging;

The main difference betweeen the Assurance -Vie and the PEA, is that you can take cash out without closing.

Specifically for the PEA, you can take money out after 8 years, without closing, but you can not top-up.

So in fact one could consider the French Assurance Vie as a grand savings account, where interest and added value are not taxed if you leave them there;

Yours,

giantpanda

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Hi,

    Re GP's post, I am getting tired of being told that "no entry fee" life assurance plans recoup their loss of the entry fee by increased annual charges-this may once have been true, and perhaps still is for some plans- but the best online plans have yearly charges which are the same as ,and even lower than, a conventional 4.5% "up-front" plan,which of course also has a yearly management fee . See fortuneo/ symphonis Vie on the web--I have been with them for several years and"je ne suis pas dupe!"

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[quote user="ausibattler"]Are there no Laws in these Countries requiring a Product Disclosure Document to be issued/updated/maintained and made available to customers who might (sic) be interested in buying these product??

[/quote]

Hi,

   Why don't you google  "online assurance vie"  I'm sure you will find all the info you need.

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Not quite what I had in mind Parsnips.

Surely each Company has a standard set of Product Disclosures regarding any product one might be interested in, setting out the 'terms and conditions'. for consideration before purchase.

Insurance,Banking,and Investment companies to name a few, in this country are required by Law to issue such documents and require acknowledgemnt of having read them before proceeding to purchase.

So what's different?

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[quote user="ausibattler"]Not quite what I had in mind Parsnips.

Surely each Company has a standard set of Product Disclosures regarding any product one might be interested in, setting out the 'terms and conditions'. for consideration before purchase.

Insurance,Banking,and Investment companies to name a few, in this country are required by Law to issue such documents and require acknowledgemnt of having read them before proceeding to purchase.

So what's different?

[/quote]

Why not contact one or more of the companies and ask for their"terms and conditions" and ,like me, you will be sent them.

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First of all parsnips/giantpanda, thank you very much for your replies.

On a general note, I now understand you are not able to transfer in existing holdings, without first selling, and maybe generating a capital gain...if only, and then reinvesting the monies into the AV. giantpanda, thanks for the suggestion of opening an AV as soon as possible, with a nominal amount to start off the 8-year period, very sensible suggestion. With the current economic climate a small amount initially just to get it up-and-running makes total sense.

More specifically, parsnips I have been onto the Fortuneo site and have tried to translate my options the best that I can. Under the Assurance Vie box I clicked on, it brought up 117 funds to choose from, can I assume from this list that the Yucatan 3 is the capital guaranteed option, or are they tucked away somewhere else? Also I have found some bond funds listed in the list, but cannot find on the information supplied that these funds pay a dividend, do French bond or equity income funds in France pay a dividend? To cloud the waters even more, I have found a box with the heading SICAV, which supposedly has 700 fonds 100% gratuit, what is a SICAV please?

Sorry if the above still seem a bit garbled, the French isn't up-to-speed yet, but I am working on it daily.

 

 

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Hi Grecian,

     The fund you want is the "fonds en euros à capital garanti",

     All dividends in funds in Life Assurance are reinvested, so avoiding any tax on the dividend, but if you need some income you take withdrawals of about the same amounts--after 8 years you will have a taxfree allowance on these (but you cannot escape the everpresent CSG).

    The reference to" 700 SICAVs gratuits" is on the non-life assurance side of the business , and they are the european version of the "unit trust", and are taxable as such. They claim to be  free of all entry, management and withdrawal fees,but I have no direct knowledge of them. 
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Thanks parsnips, you have explained everything brilliantly there in your response. It makes sense that the dividends are reinvested to avoid the tax issue, and any money I may choose to put into an AV will be for the longterm, i.e. no problem with the 8 years.

I have found the 'fonds en euros à capital garanti' fund on the website now, again many thanks. I see they are not showing the performance figure for 2008, is there anything sinister in that, or will it show up in due course? Sorry to keep asking all these questions, but do you know how the gain is generated in the fond en euros à capital garanti? I would think for 2008, trying to generate a positive reture in any fund would have been almost impossible.

I will be keeping away from SICAVs gratuits funds, as it makes to sense to put any money available into the tax free option first.

 

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[quote user="Grecian"]Sorry to keep asking all these questions, but do you know how the gain is generated in the fond en euros à capital garanti?[/quote]If they work in the same way as they do in the English-speaking world, the usual principle is that part of your money is invested in a bond that pays no interest but promises repayment of the "guaranteed" amount on maturity, and the rest is used to invest in more risky things like derivatives that offer the possibility of profits.

So for instance if you invest £1000, perhaps £800 will be used to buy a bond that will provide £1000 on maturity, and £200 will be used to play with options, futures, and other glamorous things. So at worst, you get your £1000 back - as long as the bond issuer hasn't gone bust.  There may be other variations, but I think this is the general idea.

I'm a little sceptical about the use of the phrase "guaranteed capital" - if all you get is your £1000, you've lost the interest that you might have earned.  And there's always the risk of default.

Whenever you're offered something that's guaranteed, I think you should ask two questions:

(1) who's guaranteeing it?

(2) guaranteed against what, exactly?

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Hi,

  The"fonds en euros " do not work as described by allanb, they are overwhelmingly invested in (mainly french) government bonds accumulated over many years with various maturity dates. Some funds use some of their reserves to invest in equities to give a (slight ) boost to their annual rates.The interest is locked in each year , (last year average  was about 4.5%), and the funds  publish an absolutely guaranteed rate at the beginning of each year (for the year to come)-usually about 3-3.5% in recent years.

    Thankfully they do not operate as in the "English-speaking world", as yet there have been no defaults in France comparable with Equitable Life, and as with bank accounts there is a government back-up for up to 70000€ per company, so for extra security limit your investments to 70000€ per Co. -although it must be said, the chance of a major assurance Co failing is slight.

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Parsnips: the question wasn't about fonds en euros in general.  It was about fonds au capital garanti, which is what I described: a fund guaranteeing return of your capital on a specific date, matched by the bond maturity.

A bond fund of the kind that you described may have a guaranteed interest return, as you stated, but it cannot also have a guaranteed return of capital; bond prices go down as well as up, and you cannot guarantee the future value of a fund containing bonds of differing maturities.

What I described may not exist in France: I'd be surprised if it didn't, but I'm not sure.  However, what you described is not a guaranteed capital fund.

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Lots of confusion here brought about by the vocabulary. There is no 'fonds en euros à capital garanti', but there are two separate investment styles:

1) Les fonds à capital garanti

2) Les fonds en euros

As far as les fonds à capital garanti are concerned, Allanb explained them very well. Only the capital is guaranteed. Generally around 80% is placed on deposit earning a rate which will achieve enough to re-obtain the original capital and 20% is placed in more risky investment, such a market tracker or whatever the fund offers. Worst case scenario the 20% makes nothing and the 80% has earned enough interest to repay your original capital.

The fonds en euros are exactly as described by parsnips. Allanb is not correct in his assumption that the original capital cannot be guaranteed, however it is only guaranteed as far as the provider can guarantee it, as the guarantee is offered by the provider under the terms of the contract. Thus if you want a guaranteed fund, ensure that you’re using a very stable provider the guarantee is worthless.

The second reason Allanb cannot be right is that there is not generally a huge risk for the provider since fonds en euros are rarely share based and invest in bonds that are kept to fruition. If you buy a bond at €100 and sell it in the interim, it may be worth more or less than €100. However, if it is kept to fruition a loss is not possible unless there is a default. The providers tend to use high quality debt, thus the lower return than is possible, thus a default is highly unlikely.

Kate
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Hi,

  The "fonds en euros" of Symphonis Vie has the full title "fonds en euros à capital garanti", this means that all the capital which you invest is guaranteed to be there at the end of the contract--either on death,or closure, and in addition there is a minimum guaranteed return which is published at the start of each fiscal year (usually about 3 %, recently), then at year end the actual interest(currently about 4.5%), is locked in to the account-ie that gain + the original investment is now permanently secured each year.

   So-called "guaranteed  funds" in the UK style are also available, but most french financial media advise against them.

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Indeed so, but this is a commercial name chosen by Symphonis Vie. Other firms have other names, such as "Actif Guarantee" and "securité". "fonds en euros à capital garanti" is not a generic name, which I am pointing out to avoid confusion, as indeed this name does lend itself to a great deal of confusion.
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[quote user="Complikate"]Lots of confusion here brought about by the vocabulary. There is no 'fonds en euros à capital garanti'...[/quote]

Of course there is.  All that means is a guaranteed-capital fund denominated in euros.  There are also guaranteed-capital funds denominated in pounds, dollars, etc.  Also, the word fonds does not necessarily mean a bond fund.  However...

[quote]The fonds en euros are exactly as described by parsnips. Allanb is not correct in his assumption that the original capital cannot be guaranteed...[/quote]I maintain that what I said is correct, unless Parsnips was talking about an investment contract with a fixed duration, matched by a bond (or bonds) with the same maturity.  But that isn't what he said.

Obviously any bond fluctuates in value, inversely with market interest rates, until it reaches maturity.  So the only way the bondholder's initial investment can be guaranteed is to create a contract for a specific duration, coinciding with the duration of the bond.  This is the no-risk basis for the guaranteed-capital bond, as I think we agree.  

Parsnips is talking about a bond fund (whether in euros, or in some

other currency, doesn't affect the principle).  He specifically said

that the fund he's describing contains bonds of differing maturities.  If you hold units in a fund of that kind, then at the time when you cash out, your units may be worth more or less than the amount you invested, since they will not all have reached maturity.  So you can't be sure of recovering your original investment.

Of course, the fund may offer you a promised interest return each year; just as a company could promise to pay a certain annual dividend, but that wouldn't prevent the share price from rising or falling.

The default risk, I think we would all agree, is a separate issue.  Any "guarantee" offered by the fund manager is dependent on the bond issuer's ability to pay, no matter what kind of fund it is.  

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Thanks once again for all your replies.

parsnips, you have explained everything very clearly indeed, many thanks, I now feel I have enough knowledge to understand, and open an Assurance Vie. I guess it's like most things really once you know what you are doing, then it becomes easy. I see on  the Fortuneo site it is now showing the performance figure achieved for 2008, on the Le fonds en euros à capital garanti, which came in at 4.5%, a pretty good return I would say, considering the chaos on the world markets last year.

 

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Hi allanb,

       How can I put this so you understand-- The guaranteed € fund has no UK equivalent; although based on bonds, these are not held in any way by the investor, but by the assurance company.  All money put into the fund is guaranteed to be returned to the investor together with the annual gains which are locked in every year. The investor does not have a potential loss on the maturity of the bonds as this is born by the company. Conversely ,the investor does not have a potential gain. He gets back all his investment + accumulated annual interest.

       Over time the averaged performance of the underlying bonds will be reflected in the annual interest gained. If this declines (as it has  compared with say 15yrs ago) he can withdraw all (or more sensibly the bulk of) his investment to put elsewhere, if he retains a minimum investment he can guard the advantages which go with the 8yr maturity, and possibly re-use the same plan when rates improve.

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I was trying to piece together a reply to Allanb when Parsnips’ response came up, which covered it perfectly, so not much more to add to the description of the fond en euros, just a big thank to Parsnips for saving me the effort.

As far as the name is concerned, saying “fonds en euros à capital garanti” is no different to saying “a car that has wheels”! Most people know a car has wheels, but this name is for people who do not know what a “fonds en euros” is (i.e. that it is guaranteed). Fortuneo is clearly aimed at a wide market, so including people who are investing for the first time and need to have the difference explained to them. For this reason this is a very good name, as it helps the layman understand what it is.

 The problem is that it can be (as it obviously is being) confused with the “Les fonds à capital garanti”, which, as discussed, is not the same thing at all.

I would not generally labour so much over something as simple as a name, but if people are going to not take professional advice and use services such as Fotuneo, it needs to be clear what things are called, in order to avoid future problems.

 

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To Parsnips and Complikate: I certainly didn't realize that the name fonds en euros implies that it's a guaranteed-capital fund, so thank you for putting me right on that.  But I don't know why Complikate objects to the name 'fonds en euros à capital garanti' - it is in fact accurate and descriptive.  The fund is denominated in euros, and the capital is guaranteed.

In any case, I don't think I'm failing to understand.  "The guaranteed € fund has no UK equivalent" ?  Except for the currency, it has a very close equivalent. 

As far as the investment principle is concerned, I think that what I said about the UK model applies equally to the French one.  Most of the investor's money goes into a bond (or bonds), with maturities matching the investors' contract dates (how else could they guarantee that the amount invested would be available on those dates?)  That provides the bread-and-butter; the remainder of the money goes into something more adventurous, in the hope of providing some jam.

I accept your statement that French fund managers may prefer less risky investments for the "jam" part - equities rather than derivatives, for example - but the basic principle is the same.

Incidentally, I believe that in the small print of all these "guaranteed" proposals you'll find a warning that if you withdraw money on any date other than the contract maturity, the guarantee doesn't apply.  I think this confirms my view that the whole guarantee deal depends on a match between contract maturities and bond maturities - under both the UK and French models. 

[quote user="parsnips"]The investor does not have a potential loss on the maturity of the bonds as this is borne by the company. [/quote]If you are talking about loss because of market fluctuations, there can't be a loss on maturity - that's the whole point of using bonds.

If you're talking about what happens if the bond defaults, i.e. the proceeds fail to arrive, then I don't know what happens.  Do you mean that Fortuneo would absorb the loss?  (Actually if the investment is restricted to government bonds, as you say, this is academic.  But if you know the answer, I would be interested.)

[quote]All money put into the fund is guaranteed to be returned to the investor together with the annual gains which are locked in every year.[/quote]I agree, if by "locked in" you mean the actual gains are reinvested.  Here again, this is no different from the UK model.

 

However, you did say in an earlier post "in addition there is a minimum guaranteed return which is published at the start of each fiscal year".  If so, this is certainly interesting, but I couldn't find it on the Fortuneo site: can you quote it?  I think it would be the only real difference between the French and UK types of guaranteed-capital fund.

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Hi again ,

 allanb,

     Three  points :

 1. Although technically there is a maturity date for the plan, (usually 8 yrs or life), this is only to satisfy the tax authorities-the investor can withdraw some or all of his investment at any time with no penalty, and the contract is tacitly renewed each year.

  2. If any particular bond defaults the company bears the loss; as I said before the investor is not invested in any particular bonds, he has a share in the company's fund which is invested in a large spread of bonds. If the assurance company defaults completely (unlikely) 70000€ is guaranteed by the government.

  3. Symphonis have not yet published their guaranteed rate for 2009, but many companies have, AFER for instance have guaranteed 3.49%- take a look on the net (as I just have)

  And now I'm going for a lie-down.

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My responses are the ones in Italic, just so its clear! (the whole quote thing doesn't do too well on Google Chrome).

 

To Parsnips and Complikate: I certainly didn't realize that the name fonds en euros implies that it's a guaranteed-capital fund, so thank you for putting me right on that.

 

Glad to be of service, as is Parsnips, I’m sure.


In any case, I don't think I'm failing to understand. "The guaranteed ? fund has no UK equivalent" ? Except for the currency, it has a very close equivalent. 


As far as the investment principle is concerned, I think that what I said about the UK model applies equally to the French one. Most of the investor's money goes into a bond (or bonds), with maturities matching the investors' contract dates (how else could they guarantee that the amount invested would be available on those dates?) That provides the bread-and-butter; the remainder of the money goes into something more adventurous, in the hope of providing some jam.

I accept your statement that French fund managers may prefer less risky investments for the "jam" part - equities rather than derivatives, for example - but the basic principle is the same.

 

The nearest equivalent to a “fonds en euros” in the UK is a with profit bond. Similarities are that they use bonds (as well as shares, but in larger proportions than the fonds en euros.) Gains are locked in (subject to market conditions). The “with profit” provider makes no guarantees for the investor, that they will not get out less than they paid in. The “with profit” fund may have (in adverse market conditions) an Market Value Adjuster or MVA applied, which means they may revalue the units to any of those withdrawing, thus it is very possible (as is happening to many suffering investors right now as market conditions are most certainly adverse). The “fonds en euros” does not do this and the provider guarantees the return. I know of no “generic” UK product that means the provider takes the risk itself, only a guarantee in as far as the structure is concerned.

Incidentally, I believe that in the small print of all these "guaranteed" proposals you'll find a warning that if you withdraw money on any date other than the contract maturity, the guarantee doesn't apply.

 

Allanb; I am about to amaze you and congratulate you on being totally correct… IF YOU ARE IN THE FORTUNEO PRODUCT! I was amazed to read the terms on this contract. The term is 8 years (no other “fonds en euros” I have seen has an obligatory term, though most “suggest” 8 years for tax reasons). If you want to pull out during this term, then they will charge you 3% for it! (Partial and income withdrawals are free, thankfully!)

 

It gets worse … they only pay out where the money has been invested for the entire year. Thus, if you draw it out in any one year, you are penalized the entire year. This means, for example, if the return declared is 5% for a year and you pull out of the contract during that year, even say, December, the loss to you is the 5% plus the 3%, so a whopping 8%!! Well they have to make their money somewhere!!

 

I think this confirms my view that the whole guarantee deal depends on a match between contract maturities and bond maturities - under both the UK and French models. 

 

Read the above for the response on that

parsnips wrote:The investor does not have a potential loss on the maturity of the bonds as this is borne by the company. 
If you are talking about loss because of market fluctuations, the can't be a loss on maturity - that's the whole point of using bonds.

 

Naturally a bond can “trade short” and a manager may wish to do this if he sees trouble ahead. This is rare for “fonds en euros” as they tend to use high quality debt only, as it is “their” risk!

If you're talking about what happens if the bond defaults, i.e. the proceeds fail to arrive, then I don't know what happens. Do you mean that Fortuneo would absorb the loss? (Actually if the investment is restricted to government bonds, as you say, this is academic. But if you know the answer, I would be interested.) 

 

A bond is a debt. The proceeds do not just “fail to arrive”; it is as a result of non-payment from the bond issuer. This means a bond has come to term and is due payment and the bond issuer says “empty pockets I’m afraid” and don’t pay up. That, of course, would result in a loss for the investor. With the “fonds en euros” this is not the loss of the individual, but the loss of the “fonds en euro” provider. So to answer your question, Fortuneo would absorb the loss, if they had a guaranteed minimum (which they don’t)!

All money put into the fund is guaranteed to be returned to the investor together with the annual gains which are locked in every year.


I agree, if by "locked in" you mean the actual gains are reinvested. Here again, this is no different from the UK model.

 

Well, again, I’ve covered this above. They are “locked in” unless there is an MVA, so not much of a guarantee. The “fonds en euros” guarantee is real as there is no clause for adverse market conditions.

However, you did say in an earlier post "in addition there is a minimum guaranteed return which is published at the start of each fiscal year". If so, this is certainly interesting, but I couldn't find it on the Fortuneo site: can you quote it?

 

They do not have one, as I said earlier. Fortuneo is the only “fonds en euros” contract I have ever come across with no TMG (Taux Minimum Garanti), which really is very poor indeed.

 

Overall, I would suggest that the product has a free entry for a reason.

 

But I don't know why Complikate objects to the name 'fonds en euros à capital garanti' - it is in fact accurate and descriptive. The fund is denominated in euros, and the capital is guaranteed.

 

I can’t do this anymore, I think if the car name thing worked for my young son, it should work for you. Read my last posting again and think on it for a bit (two different investments with overlapping names etc etc...no nothing? … never mind!)

 

I’m off for some Prozac!

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