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Newcastle bond can rise if FTSE falls

Newcastle Building Society is offering a bond with returns linked to the FTSE 100 which can deliver better returns if the market falls.

The FTSE guaranteed ret-urn bond offers investors the opportunity to hedge against a market slide by paying 80 per cent of any positive growth in the FTSE 100 over the product’s five-year term and 100 per cent of any fall but as a positive return capped at 25 per cent.

The product is structured so that if the FTSE falls by 25 per cent, investors get 125 per cent of their original capital while the market would have to rise by 31.25 per cent to deliver the same return.

The only real negative for investors is if the market moves sideways, in which case, they will still get back 100 per cent of their capital but inflation will have hit the cash in real terms over the bonds’ five-year term.

The bond, available from April 12, is structured as a building society account so it is subject to income tax. Minimum investment is 1,000.

Chelsea Financial Services bond manager Matthew Woodbridge says: “This is taxed as income, not capital gains, which is less attractive. We are seeing hedging on the downside entering the mainstream if building societies are doing it. I am just not sure if their clients will understand it.”


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