Abbey National has unveiled a guaranteed equity bond that is linked to the FTSE 100 index for five years and six months.
Issue 11 of Abbey National's safety plus growth bond offers investors the return of their original capital plus growth of 17.5 per cent regardless of the performance of the index. It also has maximum growth potential of 45.1 per cent.
To calculate the returns the level of the FTSE 100 index on May 14, 2003 is recorded and is measured every six months during the term. Where the index rises during any six-month period, this growth will be capped at 4.1 per cent and any falls in the index will be capped at the same rate.
The bond is lower risk than products such as nvesta's triple tracker product, which is also linked to the FTSE 100 index for five years and six months. Unlike the Abbey National bond, the nvesta bond offers a conditional guarantee, so investors only get their original capital back if the index does not fall by more than 50 per cent during the term. Otherwise, capital will be reduced by 1 per cent for every 1 per cent fall in the index. It also lacks the Abbey National's guaranteed minimum return.
However, the nvesta bond compensates for its higher risk by offering greater growth potential Investors will get three times the growth in the FTSE 100 index, but this is capped at 75 per cent. Some investors may feel not enough protection is offered by the nvesta bond and may prefer the Abbey National bond, but other investors may prefer the nvesta bond because the potential returns are higher.