The bond has a six year term and will return investors original capital regardless of the performance of the index. In addition investors will get 100 per cent of any growth in the index or 1 per cent for every 1 per cent fall in the index up to a maximum of 50 per cent. If the index has stayed the same or fallen by 50 per cent or more at maturity, investors will only get their original capital back,
To calculate the returns the closing level of the index will be recorded on February 14, 2004 and this will be compared to the average closing level during the last year of the term. Averaging is designed to protect investors from sudden falls in the index but the flip side is that it could also restrict the level of growth that is passed on to investors.
T his product is unique as most structured products are linked only to the growth in the index to which they are linked. A stockmarket fall will usually mean investors get only their original capital or will lose some of their original investment at the end of the term. This product provides a way for investors to hedge their bets, minimising their chances of coming away with no growth on their capital which is a good thing for very cautious investors.
However it is worth noting that structured products have the potential to offer geared returns, although an inevitable feature of these products is a lower level of capital protection.
Woolwich Plan Managers accelerated growth plan is one example. It provides 700 per cent of the rise in the index and will offer full capital protection unless the FTSE 100 index falls by at last 50 per cent during the term and fails to recover by the time it matures.