The third issue of AIG Life's protected growth bond is a guaranteed equity bond that is linked to the FTSE 100 index for six years.
Investors who can meet the minimum investment of £10,000 will get their original capital, plus a minimum return of 23 per cent, whatever happens to the index. The return is capped at 60 per cent, so the maximum investors can get is 160 per cent of their investment.
To calculate the returns, the level of the FTSE 100 index is taken on April 19, 2002 and on the same date every year throughout the term. Any growth in each year is capped at 10 per cent and is added to the final return. Any fall is capped at 5 per cent and this is subtracted from the final return.
The bond may be a good investment option for cautious investors who want the security of a guarantee, which stretches to a minimum 23 per cent return above the original capital. According to Standard & Poor's, the FTSE 100 index rose by 68.59 per cent in the six-year period between April 1, 1996 and April 1, 2002, which indicates that good returns can be had over a six-year term.
However, the way this bond calculates the final return makes it unlikely that investors will receive the maximum growth, despite the fact that falls are capped at a lower rate than growth in the index. The FTSE 100 index would need to increase by at least 10 per cent every year until April 2008 for maximum growth potential to be reached.