Legal & General is targeting cautious investors with the fourth issue of protected portfolio, a capital protected Isa that is linked to 30 of the biggest companies in the UK.
The Isa has a five-year term and returns depend on the individual performance of companies such as Vodafone, BSkyB and Tesco. Investors get their capital back even if the stocks fall during the term, but any return above this requires the stocks to rise.
The value of each stock is measured at the beginning and end of the term. The total of these figures is divided by 30 to produce an average which becomes the final level of return,
Capital protected products allow investors to benefit from the stockmarket while shielding them from the risk to capital they could otherwise face if share prices fall. Bristol & West's five-year guaranteed equity bond Isa is a similar product, but it differs from Legal & General's Isa in that it is linked to three stockmarket indices. Some investors may feel that B&W's diversification across the stocks contained in three indices spreads investment risk.
Others may feel safer within their home market and may choose less stocks for potentially higher returns than the capped growth available on index-linked products. But these investors would be taking higher risks with their growth potential and could end up with nothing beyond their original capital.
With both Isas, the capital guarantee applies only where the Isa is held to maturity, so investors would need to make sure they are not investing money they would later need in an emergency.