Henderson Global Investors has entered the market for structured products with its FTSE 100 income and growth plan.
This guaranteed equity bond is linked to the FTSE 100 index for a five-year term. It offers investors a choice between annual income of 6.5 per cent gross, monthly income of 0.52 per cent gross or a growth option of 35 per cent gross at the end of the term.
Investors will also get their original capital returned in full, provided the FTSE never falls by more than 30 per cent during the final two years of the term. Even if it does fall by more than 30 per cent, investors will still get their original capital returned if the index recovers by the end of the term to at least its starting level. This is measured by comparing the closing level of the FTSE 100 index on January 3, 2003 with its closing level on January 3, 2008. If the index does not recover to its starting level, capital will be reduced by 1 per cent for every 1 per cent fall in the index.
Products such as this, which have a degree of capital protection, have become popular at a time when some investors may be reluctant to invest directly in equities. This product and others such as the Prudential growth and income plan may be riskier than some bonds because there is a risk of capital loss if the stockmarket falls below a certain point.
The Prudential product offers higher returns than the Henderson product annual income of 8 per cent gross, monthly income of 0.62 per cent gross and growth of 42 per cent. However, investors could lose up to 2 per cent of capital for every 1 per cent fall in the index beyond a certain point, so it is potentially riskier than the Henderson product.