The product has a six-year term and will pay 8 per cent income a year provided the index is at least 90 per cent of its initial value. If the has fallen by more than 10 per cent, no return will be paid for that year.
Investors will also receive a full capital return at the end of the term provided the index has not fallen by more than 50 per cent during the term. If it does, investors will get a full capital return if the index has recovered to at least its initial value but if the final index level is below the initial value, they will lose 1 per cent of their capital for every 1 per cent fall in the index.
Pricing issues mean that it is impossible to create plans where a reasonable level of income and a full capital return can both be provided regardless of index performance. Structured product providers have a choice of linking the income, capital return, or both to index performance. Barclays Wealth has offered a softer version of the latter option, in that there is a 10 per cent cushion before an index fall will impact on the income payments, while capital protection is subject to 50 per cent soft protection.
As at April 18, there were two six-year FTSE 100-linked income plans available from Jubilee and Gilliat, but both closed before the publication of this week’s Money Marketing. Barclays Wealth could have this area of the market to itself unless its competitors launch some new products.
In the meantime, investors may prefer one of Investec’s five year FTSE 100 linked income plans, especially if they are not keen on linking both income and the return of capital to index performance.