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Merchant Capital kicks out from year two

The Merchant Capital kick-out plan March 2010 issue is a structured product linked to the performance of the FTSE 100 for up to six years and two weeks.

The plan provides the potential for investors to receive the equivalent of 8.55 per cent a year for each year the plan runs. It has an early maturity, or kick-out feature, that can be triggered by the index performance from year two.

At the end of year two, investors will receive 17.1 per cent growth, plus a full capital return, if the index is at or above its initial value. If the index is lower than its initial value, the plan will continue on the same basis. It will pay out 25.65 per cent, 34.2 per cent, 42.75 per cent or 51.3 per cent respectively in years three to six

Where the index is never at or above its initial value between years two and six, investors will receive a full capital return but no growth, provided the index has stayed above 50 per cent of its initial value during the investment term. If the index falls by more than 50 per cent during the term and fails to recover to its initial value by the final day of the term, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.

According to the Structured Product Review IFA website, Legal & General’s  FTSE early bonus plan 3 is a similar six-year FTSE 100 linked kick-out plan. It provides potential returns equivalent to 8 per cent a year for each year the plan runs , which is slightly lower than the Merchant Capital plan. However, it has the potential to mature from year one, so investors have a chance to get their capital and some growth a year earlier than the Merchant Capital plan.

L&G’s capital protection is also higher in that will only be lost on a one for one basis if the index is 50 per cent or more lower than the initial level on the final day of the term, as index performance is not observed during the term.


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