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Accelerated returns from Merchant Capital

The Merchant Capital growth plan: FTSE accelerator is a structured product that provides 2.7 times the growth in the FTSE 100 index at the end of a five years and three week term.

Returns capped at 54 per cent of the original investment, which means that any growth in the index above 20 per cent will not be passed on to investors. Investors in this product will also receive a full capital return at the end of the term, provided the index has not fallen by more than 50 per cent when comparing its initial value on April 11, 2011 with April 11, 2016.

One potential negative is the 54 per cent cap. Investec Structured Products’ FTSE 100 accelerated growth plan 24 is a five-year FTSE 100 linked accelerated growth plan that has a lower participation rate than Merchant Capital’s plan at two times the growth in the index. However, it has the advantage of no cap on returns, which potentially provides higher returns than the Merchant Capital product.

For the Investec product to achieve the maximum 54 per cent return provided by the Merchant Capital plan, the index would need to grow by 27 per cent. Investec’s investors would benefit from any growth in the index above this point. Merchant Capital’s investors would not but they would benefit more than Investec’s investors from index growth up to 27 per cent.

Merchant Capital’s 50 per cent hard protection means that whatever the index does in the period between the initial and final index levels does not affect the capital return. Investec’s product is more onerous in using averaging to protect investors against market volatility instead of a protection barrier. It will reduce capital by 1 per cent for every 1 per cent fall in the index based on averaging over the last six months of the term.


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