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Cahoot bond looks to short term

Abbey National&#39s online bank Cahoot has released a guaranteed equity bond on to the market which guarantees the return of investors&#39 original capital and minimum growth of 12 per cent.

The bond is linked to the FTSE 100 index over a three-year term and gives a maximum return of 50 per cent. To calculate the level of return, the closing level of the FTSE 100 is taken on August 1, 2002. This is measured against an average of the daily closing levels of the index between January 31, 2005 and July 31, 2002.

If there is no growth, investors will only get the minimum returns and their original capital back. But if the index has increased, investors get 50 per cent of this growth.

The guaranteed minimum above the return of original capital makes this bond more attractive to investors who are reluctant to take stockmaket risks, but who are not getting enough interest from building society accounts. The bond is unusual because most guaranteed equity bonds that offer a full capital guarantee have a five-year term. Products with a shorter term tend to be riskier bonds that offer a conditional guarantee, such as GE Life&#39s high income and growth plan.

A shorter term may be useful for investors who do not want to tie their money up for five years or more. But a potential downside is that they are exposed to short-term movements in the stockmarket. This may not trouble investors who think share prices will rise, but they may decide it is pointless to invest if growth is capped at 50 per cent.


Independent View – Steve Buttercase

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L&G rebate offer to expire

Legal & General has warned that its offer to rebate all charges for investments in its tracker range will expire on April 30.Until the end of the month, L&G will refund the annual management fee and all other charges for tracker Isas paid by lump sum as long as the money remains in one of […]

DBS chief Davy stepping down

DBS founder and chairman Ken Davy is stepping down after 20 years with the company.Davy pioneered the IFA network concept and for two decades he has been one of the industry&#39s highest-profile figures.He is leaving the comp-any of his own accord at the age of 60. DBS was bought by Misys in June 2001, with […]

Online mortgage sales &#39negligible&#39, says CML

Fewer people than expected are using the internet to take out a mortgage and the number of online applications is low, according to the Council of Mortgage Lenders.But the CML predicts this could change with the advent of secure electronic signatures which allow the entire sales process to be completed online.The CML&#39s research, carried out […]


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