nvesta has established the FTSE focus plan 2, a guaranteed equity bond that offers investors a choice between income and growth.
The bond is linked to the performance of the FTSE 100 index over a term of three years and two months. Investors can choose between annual income of 9 per cent a year, monthly income of 0.7 per cent or growth of 30 per cent.
Investors get all their original capital returned provided the FTSE 100 index does not fall by more than 25 per cent between year two and the end of the term. The performance of the index during the first 12 months is omitted because nvesta believes this will provide added comfort to investors who are concerned about stock performance during the war with Iraq.
If the index does fall by more than 25 per cent during the specified period, capital is reduced by 1 per cent for every 1 per cent fall in the index for falls between 25 per cent and 39 per cent. A fall of 40 per cent or more will result in a 2 per cent reduction in capital for every 1 per cent fall in the index.
This product could suit investors who are looking for a high level of income over a relatively short period, but this bond is higher risk relative to some bonds in a number of ways. Firstly, the term of three years and two months is short compared with many bonds that ride out short-term volatility over at least five years. Secondly, there is no income payable during the last two months for those choosing to take annual income and finally, investors stand to lose a lot of their capital if the conditions for a full capital return are not met.