New Star Investment Funds has teamed up with Credit Suisse First Boston International to offer the New Star income or protected capital plan.
This guaranteed equity bond has a five-year term and is linked to 50 stocks, initially those listed on the Dow Jones Global Titans Index. New Star has the discretion to replace up to four stocks with those from the FTSE 100 index within the first four years of the term.
Investors can choose annual income of 10 per cent gross, quarterly income of 2.25 per cent gross or a growth option of up to 55 per cent. The degree of capital protection investors get will depend on which of the three options investors take.
Annual income investors will get between 50 per cent and 100 per cent of their capital back. The quarterly income option returns between 55 per cent and 100 per cent of the original capital, while growth investors are guaranteed 100 per cent of their capital back.
If the price of any individual stock falls by more than 30 per cent during the term, and its average share price is lower during the last 10 days than at the start of the term, capital will be reduced by 10 per cent for each stock down to the guaranteed minimum.
The bond's use of individual stocks mean returns will be reduced even if one stock falls. However, it compares well to products such as Scottish Mutual's income and growth plan in that the minimum capital guarantee acts as a cap on how much capital can be reduced.