Keydata has introduced a new issue of the extra income plan, a capital-protected bond linked to the performance of the FTSE 100 index for a term of five years.
The bond, which is also available as an Isa and for Pep transfers, provides a choice of annual income at 6.25 per cent gross, quarterly income of 1.53 per cent or a growth option of 35 per cent at the end of the term. Investors will also get a full capital return unless the index falls by more than 30 per cent and fails to recover to at least its starting value. If this safety net fails, the capital would be reduced by 1 per cent for every 1 per cent fall in the index.
Currently most structured products are designed to provide growth rather than income. Some products provide a combination of income and growth by investing some of the capital in a structured product for growth and the remainder in a fixed-rate deposit account to provide income. However, these products are aiming at a different market and tend not to put capital at risk because the income is derived from a deposit account not derivatives.
The only other product to focus on income is Nvesta's safety net income plan 2, which offers annual income of 5.6 per cent a year paid quarterly net of basic rate tax. However, with returns quoted on a net basis and a lack of a growth option, it may not be comparing like with like.
The Keydata product fills a gap in the market for an income-producing product but the potentail for a one for one reduction in capital could lead to heavy losses if the index does not perform as investors would expect.