NDF Administration has unveiled the ninth tranche of its extra income and growth plan, which is linked to the performance of the Eurostoxx 50 index over a term of three years and two months.
This guaranteed equity bond offers investors an annual income of 10.25 per cent a year, quarterly income of 2.35 per cent or a growth option of 34 per cent. The original capital is returned to investors if the Eurostoxx 50 index does not fall by more than 20 per cent during the term. If it does, but manages to recover by the end of the term, the capital will still be returned to the investor.
However, where it falls by between 20 per cent and 30 per cent during the term and fails to recover by the end, capital will be reduced by 1 per cent for every 1 per cent fall in the index. Greater capital erosion will occur for falls of more than 30 per cent where the index does not recover to its initial level.
In this case, the capital will be reduced by 2 per cent for each 1 per cent fall in the index if the income options are chosen. Investors who choose the growth option will suffer a reduction of 2.68 per cent for every 1 per cent fall in the index.
Although this product offers some degree of capital protection, it is complicated and is suitable for sophisticated investors who are able to accept some risk to their capital. Another drawback is that the income options are paid over three years, when the actual term is two months longer. No payment is made during those two months, so the headline rates work out lower when taking the full investment term into consideration.