Keydata Investment Services has established a second issue of the extra income plan, a guaranteed equity bond linked to the Dow Jones Eurostoxx 50 index during a five-year term.
The bond offers investors a choice between annual income of 7 per cent, quarterly income of 1.7 per cent or growth of 38 per cent at the end of the term. They will also get a full capital return unless the index falls by more than 30 per cent from its start level without recovering by the end of the term.
Where the index does fall by this percentage without recovering, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.
This bond is similar to the recent offering from Henderson Global Investors, which is linked to the FTSE 100 index for a five-year term. The FTSE 100 index may be a more attractive index to UK investors than the Eurostoxx 50 because it may be more familiar.
The Henderson product provides lower returns than the Keydata product, with annual income at 6.5 per cent, 0.52 per cent income a month or growth of 35 per cent at the end of the term. However, the Keydata product exposes investors to stockmarket movements throughout the term, whereas the Henderson product provides a three-year cushion against index movements.
Investors with the Henderson product get their capital back provided the index does not fall by more than 30 per cent, but this is limited to the final two years of the term. Poor performance in the first three years would not affect the final returns, but it would have an impact on the Keydata product.