Scottish Widows is issuing a new tranche of its extra income and growth plan with improved protection. The first two plans raised more than £345m and I expect the new plan to be even more successful. It offers an income of 10.25 per cent a year or 33 per cent growth over three years.
It is linked to 30 FTSE 100 shares, each equally weighted at one 30th of the value of the basket. Stocks include major companies such as AstraZeneca, Cadbury Schweppes, Unilever and Vodafone as well as more volatile stocks such as ARM Holdings and Colt Telecom, which are at near “bombed out” levels.
The capital is returned in full provided that individual stocks have not fallen by more 33 per cent from the starting level at the end of the term.
As long as these stocks recover to their original level, there would be no loss of capital even if they did fall temporarily by more than 33 per cent.
Like the other Dublin-based bonds, income tax is only paid at 10 per cent for basic-rate taxpayers and at 32.5 per cent for higher-rate taxpayers if investments are outside Isas or Pep transfers.
While there is a small chance of losing some money over the three-year period, the chances of losing more than 2 or 3 per cent are fairly remote.
Future Value Consultants, the independent rating agency which specialises in analysing this type of product, has awarded the plan a score of nine out of 10 for higher-rate taxpayers, equal to the highest ever rating, and eight out of 10 for non-taxpayers and basic-rate taxpayers. The average score for products assessed by FVC is six out of 10. This is one of the best offerings available recently and can be recommended to most investors.