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Merchant Capital goes with the flow

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Structured product provider Merchant Capital has introduced a structured deposit that gives investors a chance to benefit from a fall in the FTSE 100 as well as any growth in the index.

The Merchant Capital deposit plan: bull & bear issue one provide an interest payment calculated at 1 per cent for any 1 per cent rise or fall in the index up a maximum of 40 per cent. If, at maturity, the index has risen or fallen by more than 40 per cent of its initial value, investors will receive only their original capital back.

As a structured deposit, investors’ capital is never at risk from the performance of the index and investors will get a full capital return regardless. The only risk to the return of capital is counterparty risk. In this case, the repayment of the original capital is dependent on the continuing solvency of Barclays Bank.

Defaqto insight analyst for funds Fraser Donaldson points out that there are other plans in the market offering a higher upside and a higher downside protection but index averaging can be used to determine the return.

He says: “At first sight this plan may seem to be too good to be true. The fact that an investor can receive an interest payment based on the rise or fall of the FTSE 100 does make it very appealing. For an Investment of £10,000 the return could be up to £14,000, which within the current market would be a good level of return over a five-year period.

“With an upside and downside up to 40 per cent this plan is worth considering if investors are unsure of the future direction of the FTSE 100 index, as long as their invested capital is not required to be easily accessible.

“If however, investors are particularly bullish on the outlook for the FTSE 100 Index to increase significantly over the next five years then this plan will look less attractive due to the 40 per cent cap.”

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Readers' comments (1)

  • Fair point Fraser. That said, the FTSE is approximately 6,000 at the point of writing, and dividends are 3%. Over 5 years, once I account for the lost dividends the FTSE needs to go up by 40% - 15% = 25% from here. That means a level of 7,500 which is nearly 10% higher than it has ever been. The Merchant plan seems good to me. FYI you can see the latest Merchant capital structured products here https://www.spgo.co.uk/merchant-capital-structured-products

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