This product is available in two versions, the Investec or UK Banks version which is collateralised to protect investors against insolvency of Investec. Each version has two income options, enabling investors to receive an annual or monthly income over a term of five years and one week. For the Investec version, option one provides 6.25 per cent income a year regardless of index performance, and will also pay a 0.5 per cent annual bonus provided the index is above its initial value on the annual bonus observation dates. Option two provides 0.5 per cent income a month regardless of index performance, plus a 0.04 per cent monthly bonus if the index is above its initial value on the monthly bonus observation dates. Averaging is used over the last five days up to, and including, the bonus observation dates to determine whether a bonus is paid.
The UK Banks version is similar, except the returns are slightly lower at 6 per cent annual income and 0.48 per cent a month. The potential bonus rates are the same as the Investec version.
Investors in both versions will receive a full capital return at the end of the term where the index does not fall by more than 50 per cent during the term. If it does, a full capital return will still apply as long as the final index level, which is an average over the last six months of the term, is at or above initial value. If the index does not recover, investors will lose 1 per cent of their capital for each 1 per cent fall in the index.
This plan links the return of capital to index performance, which enables investors to have the certainty of a fixed level of income during the term that can be enhanced through the bonus element, depending on the index performance. However, some investors may prefer Investec’s income deposit plan, as income, not capital is dependent on index performance.