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Julian Gibbs

Several stockmarket-linked bonds have recently matured and will not return investors&#39 capital in full, although, taking into account the income paid, most will have performed better than the stockmarket as a whole.

Some IFAs are now shying away from these products – quite wrongly, in my opinion, because stockmarkets are unlikely to fall by a further 40 per cent or more, which is the downside protection of the better products.

The one I like best for income at present is the NDF higher income & growth plan 4, which is linked to the FTSE 100 index. There are two options. The safer version offers 6.25 per cent income payable for five years with 40 per cent downside protection, with no account taken for any breach of the 40 per cent barrier during the first year. The downside risk is much less than some others in that, if the 40 per cent barrier is breached and the index does not recover, then repayment of capital is reduced at the rate of 1 per cent for each 1 per cent of the fall from the initial index level.

The less safe option – which, in my opinion, gives much better value – offers an 8 per cent annual income for five years. The terms are the same except that, if the protection barrier is reached, the capital repayment is reduced at the rate of 2 per cent for each 1 per cent fall from the initial index level. Both options offer growth alternatives.

It is highly unlikely that shares will fall by a further 40 per cent and not recover over a five-year period. It is also unlikely that the stockmarket will rise by more than 8 per cent a year over a five-year period so I believe that the 8 per cent option is much better value than a tracker fund with a much lower downside risk. Both these plans are very highly rated by Future Value Consultants, the independent analyst.

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