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Big is beautiful for Zurich

Zurich’s protected capital account is linked to the performance of the biggest 15 companies in the FTSE 100 index as at April 8, 2009 over a five-year term. These include BP, HSBC, GlaxoSmithKline, Tesco and Royal Dutch Shell.

Investors will receive a full capital return at the end of the term regardless of the performance of the basket of shares plus a growth return based on an average which takes into account the increases and falls in the share prices.

To calculate the returns, the value of each of the 15 stocks is recorded on July 23 2009 to provide the initial value for each stock. After a year, the share price of each stock is again recorded and if its price is greater than its initial value, it is regarded as a 12 per cent increase. If any share prices fall, the percentage of that fall is recorded and no change in the share price will result in a zero being recorded.

An average is produced which takes into account all the rises and falls in the share basket and if it is higher than the initial value of the share basket, this return will be locked in. If the average is below the initial level of the share basket, no growth will be payable that year.

The maximum return that can be locked in during any one year is 12 per cent, so the maximum growth over the term is 60 per cent.
According to the Structured Retail Products adviser website, this product is unique in being linked to a basket of UK shares. Ulster Bank has a direct product which is linked to 20 global brands but this does not provide a good comparison as it is global and is available with a choice of term that is longer or shorter than Zurich’s.

The full capital protection on offer may be attractive to some investors at a time when many structured products are offering only soft protection. However, falls in share prices are not capped but any growth is effectively capped at 12 per cent. This could mean poor performers will impact fully on the share basket while exceptional performers do not.

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