Type: Capital-protected bond
Aim: Income indexed to the Retail Price Index and the return of capital
depending on the peformance of the FTSE 100 index
Minimum investment: £1,500-£1m, Isa £7,200
Term: Five years
Return: 2% income a quarter plus full indexation to UK inflation
Guarantee: Original capital returned in full provided the index does not fall by more than 50% without returning to at least its initial value at the end of the term
Closing date: May 29, 2009, May 15, 2009 for Isa transfers
Commission: Initial 3%
Tel: 020 7597 4819
This product aims to deliver income of 2 per cent a quarter, which will keep up with UK inflation through the Retail Price Index. A full capital return after five year is dependent on the performance of the FTSE 100 index.
Putting the product into its market context, Baronworth Investment Services director Colin Jackson says: “In the current climate of low interest rates, many investors who traditionally would only invest with banks and building
societies or into guaranteed bonds are now finding the returns on offer are too low to meet their requirements, particularly those who rely on their investments for income.
“Many have now decided that they have to take an element of risk with their capital and that is why structured products are proving to be so popular with those clients.”
Focusing on the plus points of Investec¹s plan, Jackson says: “This particular product is very attractive for many income seekers as it offers an attractive rate of 8 per cent gross a year, payable quarterly, plus an additional payment linked to the Retail Price Index.”
Jackson notes that the return of capital is dependent on the performance of the FTSE 100 over the term of the plan. “Provided the plan is held to maturity then the initial investment will be returned in full provided the index does not fall below 50 per cent of its initial level during the term of the plan.
“If it does, then the original investment is at risk on a one-for-one basis for any percentage fall in the final index level as compared to the initial level. If, during the investment term, the FTSE 100 falls below 50 per cent
of its initial level but recovers so that the final level is equal to, or more than, the initial level, there will be 100 per cent return of capital.”
Jackson says the level of the FTSE 100 is currently quite low, so it could be considered a good time to invest in this type of product. “Of course, there is still the possibility that the index will fall drastically and not recover, which means that the initial investment is at risk,” he says.
Investors have the opportunity to invest within an Isa wrapper so any income will be tax free. “However, where investments are made outside an Isa wrapper, any gains at the plan maturity date may be subject to capital gains
“Working on the current annual CGT allowance, in the region of £25,600 can be invested into the plan before any CGT liability would arise. The RPI part of the plan would be taxed as income at the investors marginal rate,” says Jackson.
He feels that the product is quite complicated, but the literature is well produced and easy to understand, making it suitable for both advisory and execution-only purposes.
The adviser remuneration of initial 3 per cent is
regarded by Jackson as in line with the market.
Jackson can find nothing to dislike about the plan and feels it is unique. “There have been similar products in the past but to my knowledge, there are
none currently available.”
Summing up, Jackson says: ³Investec is certainly making a name for itself in the structured products market. This product is only one of its stable of structured products, all of which are well thought out and offer attractive
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good