Inora Life has established the dynamic income fund series 3, a guaranteed offshore bond which is linked to 25 stocks from the FTSE 100 index for five years.
Investors have a choice of annual income of 9 per cent, quarterly income of 2.15 per cent or a growth option of 49 per cent at the end of the term. To calculate the returns, the closing value of all shares is recorded daily from September 12, 2002, but only the average performance of the bottom 10 shares will count towards the final return.
Investors will receive income or capital growth in addition to a full capital return provided the value of the bottom 10 shares does not fall by more than 25 per cent during the term. If his does happen, investors get their original capital back, less any income they have taken.
If the value of the 10 stocks falls by more than 25 per cent during the final year of the term, investors will lose 1.35 per cent of their investment for every 1 per cent fall in the index, but they will still get the minimum return of their original capital less any income taken.
The fact that investors will always come away with their original investment sets this bond apart from rival products, which tend to have a conditional guarantee. For example, capital is reduced between 1 per cent and 2.066 per cent for every 1 per cent fall in the relevant stockmarket indices with Scottish Life Internationals select income and growth bonus 2 if the conditions for the guarantee are not met.