Norwich Union has brought out the second issue of the prosper guaranteed capital bond that is linked to the FTSE 100 index for four-years.
Investments made up to August 18, 2002 will receive a bonus of 0.35 per cent and those who invest between August 19, 2002 and September 6, 2002 will get a lower bonus of 0.15 per cent.
Investors get their capital back in full, however the FTSE 100 index performs during the term. To calculate the final return, the FTSE 100 index is recorded every six months and any rise or fall will be capped at 6.5 per cent, then added together at the end of the term. This means the maximum growth potential is 52 per cent.
This bond could suit cautious investors looking for a step up from building society accounts. It is different from the current crop of guaranteed equity bonds in that it has a four-year term, instead of the usual three or five years.
However, the method of calculating the return means the maximum growth potential is low in comparison with some bonds such as National Savings and Investments' guaranteed equity bond, which offers 70 per cent growth in the FTSE 100 index.
Also, every half-yearly movement in the index has an effect on the final return of the prosper bond. This could reduce the probability of investors benefiting from the maximum growth potential, as the index would have to rise by at least 6.5 per cent every six months.