Investlife Luxembourg has unveiled the higher income and growth bond, an offshore bond that is linked to the performance of 10 sectors across Europe, including the UK.
The bond has a four-year term and is linked to banks, en ergy, healthcare, chemical, media, insurance, technology, telecommunications, automobiles and food & beverage sectors. It offers investors the choice of quarterly income of 2.4 per cent, annual income of 10 per cent or a growth option of 43 per cent.
The original capital is returned to investors providing certain conditions are met. None of the 10 sectors must fall by more than 35 per cent below their starting values at any point during the term.
But even if this happens, there is another safety feature that overrides it. If the value of all 10 sectors is at last 25 per cent higher than their starting levels at any point during the term, investors get their original capital back even if a sector falls by more than 25 per cent.
However, capital is reduced if one or more sectors fall by more than 35 per cent without the overriding safety feature kicking in. Where this happens, capital is eroded by 0.25 per cent for every 1 per cent full in each sector.
This is not a product for investors for whom it is vital to protect their capital at all costs. It only takes a single sector to fall by more than 35 per cent for capital erosion to become a possibility. Although this may be mitigated by a 25 per cent rise in all sectors, there is no guarantee that this will happen.