The FTSE 100 and RPI Combination Plan 1 provides income of 7.25 per cent a year that is indexed to the Retail Price Index, the main measure of UK inflation. The income payments that are made over the five-year term are not dependent on the performance of the FTSE 100 index, but the capital protection is.
Investors will get their original capital back at the end of the term, provided the index does not fall below 50 per cent without recovering to its initial level at maturity. If this safety barrier is breached, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.
To calculate the return of capital, the closing date of the FTSE 100 index is measured on September 8, 2008 and compared with the daily average of closing levels during the last six months of the term.
According to the product database on the Structured Retail Products adviser website, this product is unique is providing inflation-proofed income.
The product could appeal to investors who are looking for income and capital protection but who are concerned about the negative impact inflation could otherwise have on their investment.
However, other structured product providers are taking innovative steps to make the income they provide stretch a bit further and could provide competition.
NDFA’s latest fixed income and regular fixed income plans use the tax treatment of non-UK dividends to boost levels of income for investors.
The FTSE 100-linked regular fixed income plan provides income of 7.5 per cent a year or 0.6 per cent a month over five years and six months. Other plans subject to income tax need provide net returns of 9.375 per cent to provide the same level of income.
The fixed income plan, linked to the FTSE 100 and Dow Jones EuroStoxx 50 indices, provides 9 per cent a year or 0.72 per cent a month over five years. Plans subject to income tax would need to produce 11.25 per cent a year to achieve the same returns.