Gilliat Financial Solutions has introduced a five-year structured deposit plan that provides annual income dependent on the FTSE 100 index trading within a specified range.
The Gilliat range deposit – April 2012 will pay 7 per cent income for each year that the index goes up or down relative to its initial value by 21 per
cent in year one, 27 per cent in year two, 33 per cent in year three, 39 per cent in year four or 45 per cent in year five. If the index trades outside these ranges on any business day during the annual observation period, no income will be paid for that year. As it is a structured deposit, the original capital will be returned to investors at maturity regardless of index performance.
This product differs from other structured deposits in its use of an increasing percentage-based trading range for the index when calculating the returns. The Meteor FTSE income deposit plan 7 has an option to provide a slightly higher annual income of 7.25 per cent that is similar in that it is based on a trading range, but does not provide a like-for-like comparison. It has a six-year term, so to benefit from the slightly higher income, investors have to tie up their money for a year longer than with the Gillat plan.
The Meteor plan’s income payments are based on the index closing at between 4,500 and 7,250 points on each business day during an annual observation period and no income will be paid in any year it does not.
Defaqto insight analyst for funds Fraser Donaldson says: “The longer the term the lower the risk that income will not be paid. The chances of the market falling or rising by 21 per cent in the first year are not high, but are not remote. Obviously, in subsequent years the risk falls further.”
He says the product would not suit clients who need a regular income but could suit those prepared to take some risk to achieve additional, but not essential, income.