Bristol & West has introduced the guaranteed FTSE bond, which follows the trend for bonds that could mature before the end of the investment term.
This guaranteed equity bond provides a full capital return to investors whatever happens to the FTSE 100 index. It also provides 100 per cent of any growth in the index at the end of the five-year term.
However, the bond could mature before the five years are up. If the FSTE 100 index has risen by at least 30 per cent by the third year, the bond will mature at that point. If this happens, investors will receive their original capital plus a return of 30 per cent.
This bond marks a departure from conventional products of this type, which cap the level of the return to pay for the capital guarantee. The price investors pay for the guarantee with this bond is the possibility that it will mature at an earlier date, with lower returns than they would get if it remained invested for the full five years.
HSBC's capital protected growth plan and Premier protected growth plan are similar products that could mature before a six-year term. The Premier product is similar to the Bristol & West plan in that the earliest it can mature is in year three.
However, this happens where the FTSE 100 index is 21 per cent higher than it was at the start of the term. In this case, investors will get a 21 per cent return plus their original capital, which is lower than the Bristol & West product.