Insight Investment has established the Insight investment growth plan, a capital-protected bond that caters for two risk profiles within one product.
The accelerated growth option is designed for investors who are prepared for less capital protection in exchange for higher returns than the capital protected option, which is aimed at more cautious investors.
Under the accelerated growth option, investors receive 10 times the growth in the FTSE 100 index up to a maximum of 50 per cent. However, if the index has risen by more than 50 per cent by the end of the term, investors will get 100 per cent of the growth in the index. They will also get their original capital back provided the index does not fall by 40 per cent or more and fails to recover by the end of the term. If these conditions are not met, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.
The capital protection option differs in that investors will get their original capital returned regardless of the index performance plus 100 per cent growth in the index. However, if the index grows by at least 30 per cent by the third anniversary, the bond will mature at that point.
Structured products like this are often criticised for their complexity and the Insight bond's attempt to be all things to all investors may make this product difficult for advisers to explain to clients. Investors would need to understand that the final return and the level of capital protection depend on the option chosen at the outset as well as the performance of the index during the term.
The main drawback for investors who choose the capital protection option is the uncertainty of whether the bond will run full term or mature at the end of three years. For accelerated growth investors, the issue is whether the returns on offer compensate for potential capital losses.