The plan provides 50 per cent of the original investment at the end of the term provided the FTSE 100 index is at or above its initial value. Investors will also receive a full capital return at the end of the term, regardless of the performance of the index.
To calculate the returns, the closing level of the index is taken on August 13, 2009 and compared with the closing level of the index on the final day of the term, August 13, 2015.
One of the attractions this product may have for investors is its simplicity. It is linked only to one index and has a fixed level of return that is known at the outset, rather than a percentage of index growth that cannot be known until the end of the term.
The plan does not have an early maturity feature that depends on index performance and which creates uncertainty in the length of term. The returns are calculated in a simple way by comparing the closing levels of the index on the first and last days of the term. Another positive is the full capital protection at the end of the term, regardless of index performance.
According to the Structured Retail Products adviser website, this plan is unique in its simplicity and six-year term. However, HSBC’s Global Markets protected FTSE 100 index bonus plan V provides growth linked to FTSE 100 over six years. It also offers full capital protection, but the returns and the way they are calculated differ from NDFA’s plan.
Investors in the HSBC plan receive the greater of 30 per cent of the original investment or 50 per cent of the growth in the index, capped at 60 per cent, provided the index is at or above its initial value. This means the maximum growth potential is 10 per cent higher than the NDFA plan. However, the index would need to rise by 120 per cent for investors to receive this.
The fixed 50 per cent return can be achieved through the NDFA plan even if there is no growth in the index, but investors would receive no growth if the index finishes lower than its initial value. For the HSBC plan to provide a 50 per cent return, the index return would need to grow by 100 per cent over the term, based on averaging in the final year.