This plan aims to provide income of 7 per cent a year or 0.56 per cent a month linked to the performance of two indices – the FTSE 100 and Dow Jones Eurostoxx 50 indices. If both final index levels are at or above their initial levels, the product provides a full capital return at maturity.
If the final index level of at least one index is below its initial level, investors still get a full capital return at maturity unless one or both of the index has fallen by more than 40 per cent during the investment period and fails to recover to at least its initial level by the end of the term. If the safety net fails, the capital return is decreased by 1 per cent for every 1 per cent fall in the worst performing index over the term.
According to the structured products database on the SRP Adviser website, this product is unique. There are two offer products aiming to provide income, but neither provides a suitable comparison for the NDF product.
The problem income products face is that pricing issues for the underlying assets make it is difficult to reconcile an income objective with a sufficient level of protection. Offering a structured capital at risk product is one way of balancing these two features but this strategy is not suitable for people who are looking for a higher degree of capital protection than a 40 per cent safety net.
Unlike many other structured products, this NDF offering does not use averaging in the calculation of returns. While this means good performance at the end of the term will not be diluted, the potential drawback is that better periods of performance in the middle of the investment term will not count towards the final returns.