MGM Assurance and Legal & General have both unveiled guaranteed equity bonds that are linked to the FTSE 100 index for a term of five years and six months.
Both bonds return investors' capital in full regardless of the index performance, provided they are held until maturity.
Legal & General's protected index plan invests in the index through a Dublin-listed company called Legal & General UK Capital Growth III.
Investors receive all the average growth in the index up to a cap of 55 per cent. When calculating the returns, the average level of the FTSE 100 index over the first six months of the term is compared with the average over the last six months of the term.
Although the maximum growth potential of MGM Assurance's growth assured bond is lower than the Legal & General product at 45 per cent, it guarantees minimum growth of 10 per cent plus investors' original capital. To calculate the returns, the level of the FTSE 100 index is taken on June 30, 2003 and compared with an average taken over the final 12 months of the term.
Some investors would prefer Legal & General's averaging at both ends of the term, which ensures the calculation is not based on a sharp movement in the index. Others may prefer MGM's averaging for a longer period at the end of the term only because it is more difficult to predict the state of the markets in five years and six months' time.
Very cautious investors may decide it is worth having the 10 per cent minimum growth offered by MGM Assurance at the expense of the higher growth potential offered by Legal & General. But for other investors, the maximum growth potential will be more important.