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Morgan Stanley IQ makes structured deposit debut

Morgan Stanley IQ has made its debut in the structured deposits market with the launch of two products, one of which is the protected growth deposit plan.

A structured deposit is a type of structured product that differs from a structured investment in that it is cash based, with a return, or interest rate, linked to the performance of an underlying asset such as the FTSE 100 index. Some structured investments link the return of the original capital to the performance of the underlying asset, while a deposit-based product will return of capital is paid in full regardless of index performance.

The protected growth deposit plan is linked to the performance of the FTSE 100 for a six-year term, but has an early maturity feature in year four that can be triggered by index performance. If the index has grown by at least 40 per cent by the end of year four, the plan will end and pay out a fixed return of 40 per cent of the original investment plus a full capital return. Where the early exit feature is not triggered, the plan will run full term, when it will pay out 130 per cent of any growth in the index plus the original capital. Where there is no growth in the index during the term, investors will exit the plan at maturity with only their original capital.

The original capital is held in a structured deposit with Lloyds and would be at risk if Lloyds became bankrupt during the investment term. If this occurred, eligible investors would be covered by the Financial Services Compensation Scheme. Investors could also receive less than they invested if they terminate the plan during the term, so it may not suit everyone as an alternative to a building society savings account.

As at February 15, 2011, it is difficult to find a like-for-like comparison to this plan from another provider. Six-year FTSE 100-linked deposit plans from Legal & General and Barclays do not have an early exit feature. Investec Structured Products FTSE kick-out deposit plan 19 has the potential for an early exit every year, but its term is a year shorter than Morgan Stanley IQ’s.

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