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Norwich Union guarantees growth

Norwich Union has brought out the guaranteed growth bond, a guaranteed equity bond linked to the FTSE 100 index for six years.
Investors in the bond will get all their original capital back plus at least 20 per cent growth regardless of index performance.

Alternatively, investors will get their original capital back plus 65 per cent growth in the index if this is a greater return than 20 per cent growth on the original investment.

To calculate the returns, the closing level of the index is recorded on September 24, 2004 and compared with an average over the last six months of the term.

Legal & General&#39s capital protection plus is a similar product linked to the FTSE 100 index for six years. It offers a minimum return of the original capital plus 23 per cent growth, which is slightly higher than that of Norwich Union. However, the maximum growth potential is lower than the Norwich Union product at 50 per cent growth in the index.

Another difference between the products is the length of averaging used in the calculation of the final return. While the Norwich Union product uses averaging over the least six months, the Legal & General product has 12-months averaging during the final year of the term. For the investor this is swings and roundabouts as Legal & General&#39s product would take into account the performance of the index over a longer period, whether that is good or bad.

If the index performance is good throughout the final 12 months this could help boost the final level of return but the opposite would be the case if performance was poor. Also, as the participation rate of the Norwich Union product is higher investors may achieve higher returns with this, depending on the prevailing market conditions, even though the averaging period is shorter.


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