Assurance Vie and Fonds En Euro/Sterling

Many clients have sensibly opted to invest in Assurance Vie (Investment Bonds) type arrangements in France for the huge income tax and inheritance advantages offered though these products for French residents. A large selection of clients have also taken the option of using the Fond en Euros or Sterling funds preferring the guaranteed rates of return offered and the invested capital’s security.

Indeed so used are the Fond en Euros funds within Assurance vie “wrappers” that often clients believe that they are one and the same. The Fond en Euros main principles are that your capital’s value is guaranteed and you are given an annual rate of interest. The assurance vie ensures your funds grow free of French taxation due to the code of law relating to Life Insurance products. This combination has been so used in France and so much money tied up in these arrangements that the Government want to bring in a statute to limit the percentage invested into Fond en Euros per investor portfolio as they see this type of fund as stagnating the French economy and restricting investment into industry via the purchase of “actions” or shares. 

Whilst these investments continue to offer a solid and secure way of investing funds for one’s future, certainly, years ago the Fond en Euros was paying a better rate than today across all of the major providers. At an average annual return of around 3.5% last year it would appear to still be a better bet than the bank. However unlike the bank most assurance vie wrappers make a charge to hold the funds and so we can see the real return drop down to a more realistic average of 2-2.5%.

This is unlikely to change in the near future so long as interest rates in general remain low in Europe, giving little room for the investment managers of the Fond en Euro Funds many options for where to place the clients monies to get the guaranteed returns required.

Whilst this situation is not a disaster and inflation rates have fortunately remained low and stable in France in recent years, there are investment options available that with similar low levels of risk to the Fond en Euros have seen returns in the region of just short of 6% per annum over the last five years. As these funds can also be held in Assurance Vie for the obvious tax advantages then it may be worth having a discussion with your advisor as to whether switching some if not all of your invested Fund en Euros/Sterling funds into a higher performing albeit low risk environment.

by Simon Verity, Country Manager France