The regular fixed income plan March 09 provides investors with 0.5 per cent income a month, the equivalent of 6 per cent a year. Like previous products, returns are treated as offshore dividends. This means basic rate taxpayers will not have to pay tax and higher-rate taxpayers will pay only 25 per cent.
Investors should also get their original capital back at the end of the term, provided the FTSE 100 index does not fall by more than 50 per cent during the term without recovering at maturity to at least its initial value. This capital security is underpinned by a financial institution known as a counterparty, which is rated AA by Standard & Poor’s.
To calculate the return of capital, the closing level of the index is recorded on April 24, 2009 and compared with the closing level of the index on April 24, 2014. If the index falls below the 50 per cent safety net during the term and does not recover by the end, investors will lose 1 per cent of their original capital for every 1 per cent fall in the index.
Investors who have found income from their savings accounts dwindle to almost nothing may choose the NDFA plan. Returns are linked to a single index that investors know well, with none of the potential problems that come with index baskets such as one index bringing down the returns of another during the averaging process.
However, the issue of counterparty risk is a concern for advisers in the wake of the Lehman Brothers collapse, so some may be reluctant to recommend structured products.