HSBC has established the seventh issue of Pep plus as a rollover product for investors in the fourth and fifth issues of the product, although the product is also available to Pep transfers from other providers.
Pep plus IV has already matured and Pep plus V is approaching maturity. Like the previous issues, Pep plus VII allows investors to benefit from growth in the FTSE 100 index over the next five years through a Dublin-based closed-ended fund called HSBC equity growth 7.
Investors in Pep plus VII will get their original capital back whatever happens to the FTSE 100 index during the term, plus 70 per cent of any growth in the index. To calculate the returns, the closing level of the index is measured on 26, June 2002 and this is compared with an average of the closing levels taken on each Wednesday during the final year of the term. Investors get the capped level of growth if the index has increased, but if it has stayed the same or fallen, investors will get only their original capital back.
Pep plus VII could be of interest to investors who want to tie some, or all, of their maturing Pep plus money up for a further five years, without exposing it to stockmarket risks. As it invests through an offshore closed-ended fund, the returns are tax-free, which gives the product some advantage over guaranteed equity bonds that are also stockmarket linked.
Britannia Life International's five-year guaranteed equity bond is also linked to the FTSE 100 index for five years, but it compares unfavourably to HSBC's product because it limits the final return to 135.25 per cent of the investment.