Scottish Life International is issuing a fourth tranche of its popular income and growth bonus fund and the terms are good. It pays 11.2 per cent gross annual income or 2.7 per cent gross quarterly income and offers growth investors 35.6 per cent gross over a three-year period. The bond is linked to the FTSE 100, S&P 500 and Eurostoxx 50 indices.
It provides a full return of the original investment provided that none of these three major stockmarket indices falls by more than 30 per cent at any time during the investment period. At current levels, this looks most unlikely. Even if the indices do fall by more than 30 per cent, investors will still receive the full return their original investment provided the closing levels of the three markets equal or exceed their starting levels.
The Eurolife income and growth plan, about which I wrote recently, has improved its terms. Income remains the same at 11.25 per cent a year or 0.85 per cent monthly, while the growth return is still 36 per cent. But the plan now invests in 30 FTSE 100 stocks instead of 20 previously.
Also, capital is returned in full unless the average fall of the worst-performing 10 stocks out of the 30 is more than 10 per cent over the three-year period. Previously, capital was only returned in full if the worst five stocks averaged a fall of more than 10 per cent. This bond is probably as safe as the SLI bond. It has advantages in that basic-rate taxpayers pay only 10 per cent tax instead of 22 per cent on the SLI bond and higher-rate taxpayers pay only 32.5 per cent instead of 40 per cent. This is because the underlying investment is a Dublin-based company.
On balance, I prefer the Eurolife plan for taxpayers and the SLI bond for pension funds, offshore investors and non-taxpayers.