Investors in the product will receive a monthly income of 0.6042 per cent, which is the equivalent of 7.25 per cent a year, over five years. This income is fixed and paid regardless of the performance of the index.
However, the capital protection provided by the product does depend on index performance. Investors will get a full capital return provided the index does not fall by 50 per cent or more during the term. If it falls by this amount but recovers by the end of the term, investors will receive their capital in full. If the index breaches this barrier and does not recover, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.
The product is structured using preference shares that allow investors to benefit from the more favourable tax treatment of non-UK dividends. Basic-rate taxpayers receive non-UK dividends effectively tax-free and the rates charged to higher-rate taxpayers will effectively be reduced to 25 per cent.
Structured product providers such as Arc Capital & Income and Barclays Wealth are offering similar five-year FTSE 100 linked income plans. The Arc fixed income plan 15 provides monthly income of 0.5 per cent a month, which is the equivalent of 6.17 per cent a year and lower than the returns from the NDFA plan.
The Barclays regular income bond provides 0.62 per cent a month, equivalent to a higher income of 7.6 per cent a year, but returns are subject to investors’ usual income tax rates.