National Savings and Investments has introduced its second guaranteed equity bond.
The bond is linked to the FTSE 100 index for five years and guarantees the return of the original capital whatever happens to the index. If the index increases by up to 70 per cent during the term, investors get all this growth. But if the index rises by more than this, any growth will be capped at 70 per cent.
To calculate the final return, the average daily closing index of the first fiv0e days of the term is taken as the start date. This is compared with the average daily closing level of the FTSE 100 over the last six months of the term.
The bond is one of the most simple products on the market as it is linked to one index and guarantees the return of capital without complicated conditions attached. Unlike some bonds, it offers investors all the growth in the index up to 70 per cent, while some products such as Bristol & West's guaranteed equity bond use a 70 per cent cap in relation to any rise in the relevant indices.
For example, the Bristol & West product is linked to three indices, including the FTSE 100. If the FTSE 100 increases by 50 per cent during the next five years, investors will get 70 per cent of this growth, which works out at 35 per cent. In comparison, the National Savings and Investments bond will pass on the full 50 per cent growth to investors. However, returns with the Bristol & West product could be boosted when the other two indices are taken into account, but this would depend on how well they perform.