National Savings and Investments has introduced the fourth issue of its guaranteed equity bond.
The bond is linked to the FTSE 100 index for a five-year term and offers 100 per cent capital protection, whatever happens to the index during that period. If the index increases by up to 60 per cent, investors get all this growth. But if the index increases by more than that, any growth for investors is capped at 60 per cent.
To calculate the final return, the average daily closing of the index over 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 bond passes on all the growth in the index up to 60 per cent, which provides better returns than bonds that have a participation rate. For example, a participation rate of 60 per cent would mean that if the FTSE 100 index rose by 50 per cent during the term, investors would get 60 per cent of this, which is 30 per cent growth.
Investors who are looking to gain indirect equity exposure through guaranteed equity bonds have a range of products to choose from. At the lower-risk end of the spectrum, Legal & General's protected index plan also guarantees a full capital return regardless of the performance of the FTSE 100 index, plus the same level of return as the National Savings and Investments product.
However, the L&G product has a term of five years and six months, so investors would need to tie their money up for six months longer to get the same potential return National Savings and Investments offers.