The early redemption plan issue 14 is linked to the performance of the FTSE 100 and the Dax (Price) index. It has an early kick-out feature that will potentially be triggered by the performance of the indices.
If both indices are at or above their initial values at the end of year one, investors will receive 11 per cent growth along with a full return of their
original capital. If this does not happen, the plan will continue until the next year, when 22 per cent growth plus the original capital may be paid. The plan will continue on the same basis for the remainder of the term, paying out 33 per cent, 44 per cent or 55 per cent growth plus capital
respectively at the end of years three four or five, depending on the performance of the indices.
If both indices are never at or above their initial values at anyanniversary during the term, there will be no growth at maturity. Investors
will receive only their original capital back, providing neither index has fallen by more than 50 per cent by the final day of the term. If this safety
net is breached and one or both indices do fall by more than 50 per cent, investors will lose 1 per cent of their original capital for each 1 per cent fall in the worst performingindex.
Defaqto insight analyst for funds Fraser Donaldson says: “The FTSE 100 is a common peg for these kind of products, and the German index is perceived as one of the more robust Eurozone economies. Pegging to two indices does increase the risk slightly, but the reward in these current markets is quite attractive compared to high street savings, probably even if reward does not come for a few years.
“But investors should not be under the impression that they are committing funds to the German or UK economy, as these are only the measures by which the benefits are paid. That being said, achieving positive performance from these two indices from current low market levels is a tempting proposition. “