The growth payment is calculated in three parts, at the third, fourth and fifth anniversaries. At the end of year three, the closing level of the index is recorded and compared with its level at the start of the term. If it is the same or above the initial value, 20.5 per cent growth is locked in and paid at maturity. Another 20.5 per cent can be locked in on the same basis at the end of year four, bringing the potential payment at maturity to 41 per cent. The same thing happens at the end of year five, bringing the potential returns up to the maximum of 61.5 per cent.
Investors will get the maximum return only if the index is at or above its initial value in all three years of the observation period. No growth is paid if the index is never at or above its initial value during the window.
A full capital return is paid at maturity, providing the index does not fall by more than 40 per cent by the final day of the term. If it does, they will lose 1 per cent of their capital for every 1 per cent fall in the index.
This product may appeal to some investors because no growth is required in the index to achieve a return. However, returns can be locked in only during the three-year observation window, so there will be a period of two years at the start of the term and three weeks at the end where investors’ capital is not generating returns. If the index performance is good outside the observation period, investors will not benefit.