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Breaks down on Widows

Scottish Widows

Guaranteed Investment Bond

Type: Guaranteed equity bond

Aim: Growth linked to the performance of the FTSE 100 index

Minimum-maximum investment: 2,000-100,000

Term: Five years and six months

Return: 75% of the growth in the index at the end of the term

Guarantee: Original capital returned in full regardless of the performance of the index

Closing date: September 11, 2005

Commission: Initial 3%

Tel: 0845 600 8910

The Scottish Widows guaranteed investment bond is a FTSE 100-linked guaranteed equity bond with a term of five years and six months. It provides a full capital return regardless of the performance of the index plus 75 per cent of the growth in the index at the end of the term.

Considering in what ways the product is good for IFAs and their clients, Bright Financial Services Paul Breaks says: “This is a five and a half year capital guaranteed investment with growth linked to the FTSE 100 index. It is very easy to understand product and the literature is also easy to understand.” He also mentions the fact that there is no further tax liability for basic rate taxpayers as good.

Turning to the potential drawbacks of the product Breaks says: “It only provides 75 per cent of the growth in the FTSE 100 index and investors do benefit from dividend income. Investments in this product are subject to bond taxation, so it unlikely to be suitable for non tax-payers as there are more tax efficient investments available elsewhere.”

Breaks then turns his attention to other products which may provide competition. He says: “Keydata offers a six- year plan, which provides 200 per cent of any growth in the FTSE 100 index. It offers capital security providing the index does not fall by more than 50 per cent from its starting level or falls by more but recovers to the starting level. This product is liable for capital gains tax, which means many investors will be able to use their annual allowance.”

He also cites a capital-protected product from Zurich which offers 100 per cent of any growth in the FTSE 100, or if the FTSE falls by no more than 50 per cent, the amount it has fallen by is added to the original investment. “This plan is income tax assessed so it is great for non taxpayers,” says Breaks.

Summing up Breaks says: “Given strong performance of equity markets, many clients now happy to invest directly into equities without the need to fully guarantee 100 per cent of capital at the expense of dividends and flexibility. I am unlikely to recommend this product as there are better similar investments available.”

BROKER RATINGS

Suitability to market: Poor
Investment strategy: Poor
Adviser remuneration: Average

Overall 3/10

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