Bristol & West has introduced its 6 year income & growth bond which consists of a guaranteed equity bond for growth and a high interest account.
The high interest account element pays monthly income of 5 per cent and gives investors penalty-free access to this part of their investment.
The guaranteed equity bond element of the product is linked to the performance of the FTSE 100, Eurostoxx 50 and Nikkei 225 indices over a six-year term. Investors get the full amount of their original capital returned even if the stockmarket indices fall during the term.
The final return is calculated by adding together the average growth in each index over the six-year term to produce a final average. Investors get 80 per cent of this growth.
The capital protection is a good feature for cautious investors, but the price of the protection is the 80 per cent cap on growth. Some investors will feel they do not need capital protection at all since stockmarkets are already at a low point and may be moving towards the recovery aspect of the investment cycle. Others may choose a guaranteed equity bond with a shorter term that offers a guaranteed level of growth in addition to the return of the original capital.
One example is Newcastle Building Society's capital safe bond, which returns the original capital and 20 per cent of growth in the FTSE 100 index after a five-year term. However, it has a cap on growth of 60 per cent so this level of protection is even more expensive.