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Julian Gibbs

There are now more than half-a-dozen stockmarket-linked high income and/or growth bonds available, with the highest income coming from Scottish Life&#39s income and growth bonus bond 3 at 10.3 per cent a year, just ahead of Scottish Widows&#39 extra income and growth plan at 10.25 per cent and Scottish Mutual at 10 per cent.

I have looked at these bonds and others on independent analyst Future Value Consultant&#39s website at www.futurevc.co.uk. It gives the highest rating (eight out of 10) to Widows for basic- and higher-rate taxpayers. Scottish Mutual is next (seven out of 10 for basic-rate taxpayers and six out of 10 for higher-rate taxpayers), while Scottish Life comes last (five out of 10 for basic-rate taxpayers and four out of 10 for higher-rate taxpayers).

In each case, FVC estimates the probability of losing money. With Widows, the chance is only 3 per cent. For Scottish Mutual, there is estimated to be an 8 per cent chance of losing between 0 and 5 per cent and a 9 per cent chance of losing more than 5 per cent. The Scottish Life bond is estimated to lose between 0 and 5 per cent on 2 per cent of occasions and more than 5 per cent on 18 per cent of occasions.

For investors who do not wish to take any risk at all, there is an excellent growth bond issued by Pinnacle – the protected bonus bond plus – which returns a minimum over five years of 120 per cent, with the possibility of returns of up to 190 per cent linked to the Nasdaq index. I believe this index will rise considerably over five years but there are great dangers in linking bonds to it for a shorter period than this.

On balance, I prefer the Scottish Widows plan for those who want income and are prepared to take a little risk and the Pinnacle plan for those who want guaranteed growth with a substantial potential upside.

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