Legal & General has introduced the third issue of protected portfolio, a capital protected Isa that has a five-year term.
Protected portfolio III is linked to a portfolio of 30 stocks that are taken from the largest companies in the UK. These include companies like GlaxoSmithKline, Next, Dixons, Reuters and Vodafone.
The return investors receive is based on the individual performance of each stock, but investors will get their original capital back whatever happens. The value of each stock is measured at the beginning and the end of the term. The total of these figures is divided by 30 to produce an average which becomes the final level of return.
The capital protection feature may encourage some investors to use their Isa allowance because their original capital is not at risk. It may also attract investors who are thinking of taking a step up the investment ladder from building society accounts, which are currently offering low returns.
However, the final return may be difficult to calculate and some investors may not understand how the product works. Also, as it is based on an average of all 30 stocks, investors will not get the full benefit of shares that perform exceptionally well. On a positive note, this also means that the effects of shares that perform badly will be limited.