National Savings and Investments has introduced the third issue of its 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 65 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 65 per cent. This is 5 per cent lower than was offered under the previous issue in July.
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.
The bond is a simple product that has the advantage of being linked to an index that is familiar to investors and its capital guarantee does not depend on the index remaining above a certain level. Products such as NDFs income and growth plan 3 and Keydatas extra income and growth plan attach such conditions, but they offer income options which the National Savings and Investments bond lacks.
Abbey Nationals safety plus growth issue 9 goes one better than the National Savings products in one respect, since it offers an unconditional capital guarantee plus a minimum return of 20 per cent. However, the Abbey National product has lower maximum growth potential of 55 per cent compared with the National Savings product, so this is the price investors pay for the guarantee of getting something back beyond their original investment.