Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

What best defines an investment bond?

1. A government savings bond

2. A partnership investment strategy

3. A single premium life insurance policy for investment purposes

4. A mutual fund investment

The correct answer is: A single premium life insurance policy for investment purposes

An investment bond is best defined as a single premium life insurance policy specifically designed for investment purposes. This type of bond allows individuals to invest a lump sum amount while providing a degree of life insurance coverage. The cash value of the bond grows over time, often benefiting from tax advantages depending on the jurisdiction. The key aspect of investment bonds is their dual nature: they serve both as a life insurance policy and as an investment vehicle. The funds can be managed in a variety of ways, including being invested in various assets, which helps policyholders accumulate funds for future needs, such as retirement or education expenses. In contrast, the other options are more narrowly defined or represent entirely different financial products. A government savings bond is a fixed-term, low-risk investment issued by a government. A partnership investment strategy refers to cooperative investments made by individuals or entities sharing profits and losses. A mutual fund investment represents a pooling of funds from many investors to purchase a diversified portfolio of stocks or bonds, which is distinct from the specific characteristics of an investment bond. Therefore, the definition focusing on a single premium life insurance policy for investment purposes is the most accurate.