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Merrill Lynch grows PIPs

Merrill Lynch HSBC, the online financial services company, has designed a capital protected bond linked to the FTSE 100 index over a five-year term.

The FTSE 100 growth protected investment product (PIP) is the company&#39s third PIP, but it covers different ground compared to the previous ones. The first PIP was linked to four stockmarket indices over five years and the second was linked to the FTSE 100 over a shorter term of three years.

Like the previous Pips, the latest one does not simply guarantee the return of the original capital if held to maturity — it also guarantees a minimum return however the index performs. Investors with at least £5,000 to invest in the bond get at least 10 per cent gross after five years on top of the return of their original investment. If the average level of the FTSE 100 increases by at least 10 per cent by the end of the term, investors get a bonus which brings the maximum growth potential up to 50 per cent.

This bond may suit investors who want to dip their toes in the stockmarket without drowning in the stockmarket&#39s current decline. According to FTSE, the FTSE 100 fell to 5204.33 points on September 6, 2001, from a 52-week high of 6930.20 points.

The capital protection offered by the Pip may be more comforting for investors than some products which impose conditions on the guarantee and the minimum return is likely to prove attractive. But any growth is limited to 50 per cent after five years, which may not be high enough for investors who would prefer higher returns to a guaranteed minimum return and full capital guarantee.

In addition, investors must first enrol for Merrill Lynch&#39s investment banking service before they can purchase which can be done through the internet and this may put some people off.

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