National Savings and Investments has introduced its first guaranteed equity bond following the company's recent revamp.
The bond is linked to the FTSE 100 index for a five-year term and offers 100 per capital protection, whatever happens to the index during that period. If the index increases by up to 65 per cent, investors get all this growth. But if the index increases by more than that, any growth for investors is capped at 65 per cent.
To calculate the final return, the average daily closing index of the first five 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.
This guaranteed equity bond offers full capital protection, unlike some bonds which offer capital protection unless the index falls beyond a certain point. This makes it more appealing to investors at the more cautious end of the spectrum.
NDF's recovery growth plan 2 is an example of a bond that imposes a condition on the capital protection. This bond is also linked to the FTSE 100 index and returns investors' original capital at the end of the five-year term unless the FTSE 100 index falls below 50 per cent without recovering. But growth is not restricted by a cap like the National Savings & Investment bond, which could make it more attractive to investors who think the stockmarket is going through an upward cycle.