NDF and Premier Fund Managers have both introduced FTSE-100-linked capital-protected bonds which could mature earlier than the six-year investment term.
NDF's offering, the UK defined bonus plan, provides a full capital return provided the index does not fall by more than 50 per cent during the term. Even if it does, investors will still get their capital back as long as the index returns to at least its initial value.
The early maturity feature means that each year, if the index is the same or higher than the initial level of the index, the bond will mature and investors will get a a specified return. In year one this is 7.5 per cent, in year two 15 per cent, in year three 22.5 per cent, in year four 30 per cent and in year five 37.5 per cent. If the bond manages to run full term, investors will get 100 per cent of the growth in the index.
Premier growth plan - limited editions no 16 is a similar product that also returns the original capital unless the FTSE 100 index falls by more than 50 per cent and does not return to at least its initial value. However, this product will mature early each year only if the index has risen by at least 4 per cent compared with its initial value. This should make it more likely to run full-term relative to the NDF plan, which requires a fall in the index to enable the investment term to continue.
Investors with the Premier plan stand to gain 8 per cent growth in the first year, 16 per cent in the second, 24 per cent in the third, 32 per cent in the fourth, 40 per cent in the fifth and 48 per cent if the bond runs full term.
Although the returns are higher with the Premier plan in years one to five, investors with NDF would benefit from a potentially higher return in year six if the index rose by more than 48 per cent. However, given the various early release points, it may be unlikely that the bond will run full term.