The Merchant Capital deposit plan: agricultural commodities has a term of three years and two weeks. It provides growth of 18.5 per cent at maturity providing the commodity basket, which comprises corn, sugar and soybean, is at or above its initial value at the end of the term.
To calculate whether the index grows, falls or stays the same, the initial value of the commodities basket is measured at close of business on April 19, 2011. This figure is compared with an average taken over the last six months of the term. Merchant Capital says this beneficial in that it calms the effect of erratic or volatile movements, which are common in the commodities market.
Investors will also receive a full capital return at maturity regardless of the performance of the commodity basket. However this is subject to counterparty risk, as the return of capital will depend on the ongoing solvency of the Royal Bank of Scotland, which is the deposit taker.
The FTSE 100 is still the most popular underlying investment for structured products so that linking performance to a specific part of the commodities market is unusual. It is possible to gain broader commodities exposure through another structured deposit, Gilliat’s diverse deposit April 2011, but this is completely different to Merchant Cpaital’s product. The commodities option in Gilliat’s plan is linked to 36 commodities through the RBS Volatility Controlled Commodity Stragey index for a longer term of five years and two weeks. Returns are based on a percentage of the growth in the index, which is different to the fixed returns offered by Merchant Capital.