Legal & General has established the index growth and protection plan, a guaranteed equity bond that is linked to the FTSE 100 index for a term of five and a half years.
The bond guarantees the return of all the original capital at the end of the term regardless of the performance of the index. Investors also receive 70 per cent of any growth in the FTSE 100 during the term, but this operates as a participation rate. For example, if the FTSE 100 index increases by 50 per cent, the return would be 70 per cent of this - 35 per cent.
When calculating the return, an average is taken of the closing levels of the FTSE 100 index during the first six months of the term and compared with an average taken during the last six months.
This bond offers more capital protection than some guaranteed equity bonds such as Keydata's dynamic growth plan, which is also linked to the FTSE 100 index for five and a half years. The Keydata bond offers investors five times the growth of the rise in the FTSE 100 index up to a maximum of 60 per cent, but capital is only returned if the FTSE 100 index does not fall by more than 50 per cent during the term.
Other bonds such as Abbey National's safety plus growth bond extend the guarantee to a minimum level of growth above the return of capital, but the potential drawback with this is growth is capped at 4.1 per cent every six months during the term. This produces a maximum return of 41.1 per cent, whereas the Legal & General product could potentially produce higher returns.