Get out of these dog funds

With-profits funds were once regarded as the ideal way to earn consistently higher returns than a bank or building society account but without the volatility and risks associated with investing in the financial markets. This was partly done by paying out steady annual bonuses to investors during the good times, some profits would be stashed away to top up bonuses in the lean years.

But providers were caught out by steep falls in stocks during the bear market of 2000-2003. Many shifted out of equities just in time to miss the recovery and have been forced to discontinue bonus payments. So it's unsurprising that until insurance companies were made to disclose their performance statistics earlier this year, many declined to volunteer the information.

According to Money Management's latest survey of with-profits funds, recent performance has been far from sound. As the table above shows, the worst-performing with-profits fund would pay out £28,874 on maturing in August 2006, based on putting £50 away every month for 25 years. That's against an average payout of £49,410. In 1992, the average maturity value was £90,535, a figure beaten by only one with-profits fund today: the Reliance Mutual, which has a maturity value of £109,554.

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"If you're in a dog with-profits fund, then getting out should be a priority as the prospects for an upturn in its fortunes look slim," says BestInvest's Justin Modray in The Sunday Telegraph. "The poor performance is probably due to low equity exposure, a situation that is unlikely to change for weaker funds."