Britannia International has established the 12th edition of its guaranteed capital equity bond.
This issue of the bond offers growth potential of 35 per cent gross over five years. The bond returns investors' original capital whatever happens to the FTSE 100 index during the term. Investments will accrue a fixed rate of interest at 6 per cent gross until the start of the term on March 6, 2003.
To calculate the final returns, the closing level of the index is taken at the start of the term and is measured against the average level of the index during the last 12 months of the term. If the index has risen or has remained at the same level, investors get their original capital plus 35 per cent gross. If the index has fallen, investors will only get their original capital back.
This bond is lower risk and has a simpler structure than some products which offer a choice of income or growth with a lesser degree of capital protection such as NDF's selector income & growth plan.
However, some products such as Abbey National's safety plus growth guarantee minimum growth of 17.5 per cent above the original capital even if the index performs badly. Where they get a capital return only, some investors may feel they have lost out because investing in a building society would result in some return, however small, above their original capital.
Investors who are trying to choose between the bonds would need to decide whether it is worth locking their money away for five years and six months to get a guaranteed return of 117.5 per cent with Abbey national, rather than the 100 per cent return guaran teed by Britannia International after just five years.