Donaldson says: “This plan has been designed for investors who are looking for the growth potential of equity-linked returns over a six-year period, and are prepared to receive their money back before the end of the term.
The plan will provide a return of the investors’ full capital together with a fixed return of 11 per cent if the FTSE 100 is higher than at the starting level. If it is below then the plan will continue into year two. This kick-out feature will be assessed at each yearly anniversary and will be triggered if the growth of the FTSE 100 is higher than at the starting level. The following growth options will apply; 22 per cent at year two, 33 per cent at year three, 44 per cent at year four, 55 per cent at year five and 66 per cent at year six. If at the end of the plan the FTSE is equal to or above 50 per cent of the starting level of the FTSE 100 the investors will only receive back their initial capital.
“A consideration must also be made regarding the averaging of the FTSE 100 Index within this plan. It takes place over the four business days up to and including the potential early maturity dates or the final maturity dates as applicable. This is a positive feature bearing in mind the extreme volatility that the FTSE100 may experience over the duration of the plan.
“The risk to be mindful of with this product is with the counterparty. If the counterparty becomes insolvent before the end of the term the original investment will be lost. Investec Bank has been rated as Baa3 by Moody’s and BBB- by Fitch.
“This plan will certainly appeal to a number of investors as long as they are willing to accept that their return is capped, not guaranteed and that the plan may mature earlier than expected. The potential for growth is good and the return of full capital is attractive should the Index perform badly. There is flexibility for investors that may wish to still gain access to their investment as withdrawals are permitted as long as the minimum of £1,500 remains invested. It is worth remembering though that this investment is not invested directly into the FTSE 100, but linked to it so the returns achieved may be higher or lower than the returns or losses that might be achieved from investing directly.”