NDF Administration has introduced the income plan, which offers a fixed rate of tax-free income in the first year.
This closed ended investment company has a term of six years and two months and is linked to the performance of the FTSE 100 index from the second year. Investors get their original capital returned in full at the end of the term, however the index has performed.
Investors can choose from an annual income option, a monthly income option and an accumulated income option which pays income at the end of the term.
The annual income option offers 6 per cent in the first year. From years two to six, income is linked to the dividends paid by the companies that make up the FTSE 100 index. These are added together each year and are measured against the previous year to produce a dividend yield. Investors get 2.12 times this dividend yield in year two and twice the dividend yield in years three to six.
Investors choosing the monthly income option get fixed income at 5.6 per cent a year, paid monthly. In year two they get 1.97 times the dividend yield and 1.85 times in subsequent years.
The accumulated income option pays 2.25 times the dividend yield at the end of the term, which could be useful for investors seeking growth.
The capital guarantee and fixed income for the first year are good features, but income levels may not be high if there is a repeat of current stockmarket turbulence during the term. Some investors may also be put off by the complicated way that income is calculated from year two onwards.