The product combines a fixed rate high interest account, a guaranteed equity bond linked to the FTSE 100 and a capital protected bond linked to the performance of the Halifax House Price Index over a six year term.
Investors’ original capital is split equally between the three elements and investors will get a full capital return regardless of the performance of the indices.
The high interest account element provides interest at 7 per cent gross payable monthly over a six-year period.
The guaranteed equity bond element provides 75 per cent of the growth in the FTSE 100 index while the capital protected bond element providing property exposure offers 75 per cent of the growth in the Halifax House Price index over the six-year term.
To calculate the returns, the closing level of the FTSE 100 index is recorded on February 14, 2005 and measured against an average taken over the last 12 months of the term. Investors will get 75 per cent of this amount. Similarly the Halifax House Price index for January 2005, published in February, will be measured against the monthly average levels of the index over the last 13 months of the term. Again, investors will get 75 per cent of this growth.
In a pricing environment where it is impossible to offer a full capital guaranteed with income and growth, this product provides a viable solution. It also offers diversity across asset types, so the returns are not linked purely to the performance of equities.
However, the participation rate of 75 per cent in both the FSTE 100 index and Halifax House Price index is not as generous as some investors would like and some may feel the cost of the capital guarantee is high in this case.