9/10 for Merchant Capital plan

Type: Capital-protected bond

Aim: Income and the return of capital linked to the FTSE 100

Minimum-maximum investment: £5,000-£2m, Isa £10, 680

Term: Six years and three weeks

Return: 6% income a year

Protection: Original capital returned in full at the end of the term provided the index does not fall by more than 50% by the final day of the term

Closing date: November 14,  2011, November 7, 2011 for Isa transfers

Commission: Initial 2.5%

Tel: 020 7332 2200

This structured product from Merchant Capital provides annual income of 6 per cent for six years and will also provide a return of capital that is dependent on the performance of the FTSE 100 index.

Discussing the ways in which this fund could be useful to IFAs and their clients, Baronsworth Investment Services director Colin Jackson believes Merchant Capital has got it right both in terms of timing and the product.  He says: “There is a lot going for this product.  It could be said that this is an ideal time to launch a product where the return of capital is linked to the performance of the FTSE 100.  

“The Index, at the time of writing this review, is well down on the level 12 months ago.  It could be some time before the Index recovers but, as this is a six-year product, there could and should be sufficient time.”

Jackson points out that the plan uses the European protection barrier of 50 per cent. “This means that the level of the Index is measured at maturity and not during the term.  In other words, if the Index falls below the 50 per cent protection barrier during the term of the product, it will not have any impact on return of capital, which is only measured at the very end. “

Jackson adds that the level of annual income at 6 per cent is attractive balanced against the risk of loss of capital.  “As is to be expected from Merchant Capital, the literature is well written and easy to understand.  It has selected Barclays Bank as the counterparty, which is currently rated AA- by Standard & Poor’s. Very reassuring for investors.”

However, Jackson observes that the IFA commission level of 2.5 per cent is less than the market rate.  “The plan has all the usual investment options including within an Isa wrapper and Isa transfers,” he says.

There is nothing Jackson dislikes about this plan. “There are numerous other products of this type on the market – undoubtedly with more to come – but utilising the European barrier with an attractive level of income and counterparty with a high credit rating makes this a hard act to follow,” he says.


Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average

Overall 9/10