The returns and capital protection offered through this product depend on the performance of the FTSE 100 and Dow Jones Eurostoxx 50 indices. The plan provides a choice of 7 per cent income a year, 1.72 per cent income a quarter or 38.7 per cent rolled up income to provide growth at the end of the five-year term.
Investors will also receive a full capital return after five years provided the indices do not fall by more than 50 per cent without recovering to at least their initial values. Even if one index breaches this safety net, investors will lose 1 per cent for every 1 per cent fall in the worst performing index.
To calculate the return of capital, the closing level of each index is recorded on March 7, 2008 and compared with the closing level on March 7, 2013.
According to the Structured Retail Products adviser website, there are no other income products linked to these indices, which makes Keydata’s offering unique.
However, pricing issues make it impossible to offer income and a full capital return so investors will have to decide whether opting for income is worth the risk of potential capital loss. This product’s use of two indices will also put some people off because although there is some diversification, investors risk capital loss if one index breaches the safety net and the other does not.
When calculating the capital return at the end of the term, the plan does not use averaging. This leaves investors exposed to potential dips in performance that breach the safety net, even if performance has been good until the end of the term.