Investors in the product will get a full capital return, regardless of the performance of the index plus 130 per cent of the rise in the index at the end of the term. To calculate the returns, the closing level of the FTSE 100 index is recorded on July 6, 2005 and compared with an average taken over the last 12 months of the term.
While averaging will reduce the impact of the ups and downs of the stockmarket, on the negative side, it will also constrain growth.
According to the StructureRetail Products website, there is currently one other onshore product with a six-year term that offers geared returns linked to the FTSE 100. This is the Woolwich Plan Managers accelerated growth plan, which offers 400 per cent of the growth in the index over six years subject to a cap of 64 per cent growth.
Clearly, the Woolwich plan is a different type of product aimed at a different market to the L&G plan, as it is offering a potentially higher level of geared returns, but with a lower degree of capital protection. Investors in the Woolwich product will get their original capital back only if the index does not fall by 40 per cent or more without recovering to at least its initial level by the end of the term. If it breaches this condition, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.
Consequently, it would be more appropriate to investors who are willing to take more risk compared with the lower-risk L&G product.